Less than seven months after the initial meeting of the Private Company Council (PCC), the Financial Accounting Standards Board (FASB) issued the first three PCC proposals on July 1 to address the complexity and cost of private company financial reporting. The three proposals, which have been issued for public comment as proposed Accounting Standards Updates (ASUs), include:
* PCC Issue 13-01A, Accounting for Identifiable Intangible Assets in a Business Combination, would allow private companies relief from the requirement to separately recognize certain intangible assets that are acquired in business combinations. The proposal addresses the concerns of private company stakeholders that the benefits of estimating the fair value of certain identifiable assets are outweighed by the cost and complexity of developing that information.
Under this proposal, a private company would have the option not to recognize an intangible asset separate from goodwill, unless that asset arises from a noncancelable contract or other legal right. However, the entity would have to disclose the nature of the identifiable intangible assets acquired but not recognized separately as a result of choosing the accounting alternative. If an entity elects this accounting alternative, it would apply it to all future business combinations.
The alternative guidance would typically result in fewer intangibles being recognized separately in a business combination, because intangibles that meet the current separabilty criterion in Accounting Standards Codification (ASC 805), Business Combinations, or that arise from cancelable contracts, would be included as a component of goodwill.
For instance, a noncontractual customer relationship, which is currently recognized as a separate intangible asset in many business combinations, would be subsumed into goodwill using the accounting alternative in the proposal.
Additionally, separate intangible assets that would be recognized under the alternative would be measured at fair value, but if the intangible asset relates to a noncancelable contract, only market participant assumptions about the remaining noncancelable term of the contract would be considered in the fair value measurement.
On the other hand, if the asset relates to a legal right, the fair value measurement would involve all market participant assumptions.
With some exceptions, comment letters have generally been favorable toward the proposal.
* PCC Issue 13-01B...