The Financial Accounting Standards Board has taken another step toward exempting private companies from separately recognizing and measuring non-competition agreements and customer-related intangible assets that are not capable of being sold or licensed independently in a business combination.
The board’s Private Company Council, which advises the FASB on accounting standards for privately held firms, voted at a meeting Tuesday to finalize an alternative for the accounting for identifiable intangible assets in a business combination, such as a merger or acquisition, and to send it to the board for endorsement.
“Many of the exceptions to accounting standards that the PCC recommends are ultimately approved by FASB and some are even applied more widely to publicly traded companies as part of an effort to simplify accounting standards,” Accounting Today noted.
The PCC voted tentatively in July for an alternative that would exempt intangible assets, including non-competition agreements and customer-related intangible assets, that are not capable of being sold or licensed independently from the other assets of a business.
“Under this alternative, an entity would be required to disclose qualitatively the nature of intangible assets that are not recognized separately from goodwill as a result of applying the accounting alternative,” the council noted.
The PCC directed FASB staff to conduct additional research on whether non-competition agreements (NCAs) would be considered part of a business combination; whether off-market customer-related contracts would be separately recognized; and whether contract assets arising from revenue transactions would be separately recognized.
“If the PCC moves forward with an alternative for private companies wherein NCAs would not be recognized separately from goodwill in a business combination, the existing diversity in practice would result in different financial reporting outcomes,” FASB staff noted in a memo.
At Tuesday’s meeting, the council also discussed ways to improve the accounting for stock-based compensation for private companies.
Source: Accounting Today Private Companies May Get Exemption on Accounting for Intangible Assets