Simpler Alternative for Intangible Assets Available to Private Companies Before Year-End

Private companies can now avoid the complexity of identifying and measuring certain intangible assets. New Accounting Standards Update (ASU) provides the alternative for private companies to elect not to recognize certain intangible assets separate from goodwill. It takes effect in fiscal years beginning after December 15, 2015.

An entity within the scope of this ASU that elects the accounting alternative to recognize or otherwise consider the fair value of intangible assets as a result of any in-scope transactions should no longer recognize separately from goodwill:

  • Non-compete agreements, and
  • Customer-related intangible assets

For customer-related intangible assets to be included in goodwill, they must not be capable of being sold or licensed independently from other assets of the business.

This ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, only applies to nonpublic for-profit companies. The decision to adopt the accounting alternative in this ASU must be made upon the occurrence of the first transaction within the scope of this accounting alternative in fiscal years beginning after December 15, 2015, and the effective date of adoption depends on the timing of that first in-scope transaction. Once the adoption is made, it is effective for that year and all fiscal periods afterward. Early adoption is permitted.

An entity that elects the accounting alternative in this Update must adopt the private company alternative to amortize goodwill as described in FASB ASU No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill. However, an entity that elects the accounting alternative in Update 2014-02 is not required to adopt the amendments in this Update.

Qualitative disclosures currently required under GAAP will continue to provide information without the undue cost and complexity associated with measuring the fair value of intangible assets not recognized under this alternative.