On June 10, 2013, the FASB voted to endorse three proposals of the Private Company Council (“PCC”). Two of these proposals impact the valuation and related accounting implications associated with business combinations and goodwill impairment:
- PCC Issue 13-01A, Accounting for Identifiable Assets in a Business Combination, would permit a private company to:
- Recognize intangible assets in a business combination for only those that arise from noncancellable contractual terms or other legal rights.
- Determine the recognized value of an intangible asset with a noncancellable term without taking into consideration potential contractual renewals.
- PCC Issue 13-01B, Accounting for Goodwill Subsequent to a Business Combination, would allow a private company to:
- Amortize goodwill over the lesser of: (a) the useful life of the primary asset acquired in the business combination that gave rise to the goodwill and (b) ten years.
- Test goodwill for impairment only when a triggering event occurs.
- Test goodwill at the entity level rather than at the reporting unit level.
- Utilize a single step quantitative test for goodwill – with goodwill impairment equal to the excess of a company’s carrying amount over its fair value.
The next step is for the FASB to issue Exposure Drafts for public comment by the end of June 2013. The expectation is that the comment period for the proposals will end in the latter half of August 2013 to facilitate discussion of the proposals at the PCC’s meeting on October 1, 2013.