FASB Also Addresses Intangible Assets Acquired in a Merger or Acquisition
October 9, 2006
The FASB issued the second of two October 9 exposure drafts, which proposes guidance for intangible assets resulting from a merger or acquisition (click here for the first October 9 ED). The ED, “Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition,” seeks to clarify accounting and reporting of intangible assets that would be recognized as a result of new proposed accounting guidance in the related ED titled “Not-for-Profit Organizations: Mergers and Acquisitions.”
The proposed statement was necessary because at the time the board issued FASB Statement No. 142, “Goodwill and Other Intangible Assets,” the board indicated that it intended to address the issues related to the application of the purchase method by not-for-profit organizations – and the companion ED released on October 9 requires a purchase or acquisition methodology.
A significant conceptual difference to current accounting practice related to goodwill and other intangibles is that the proposed standard does not automatically consider goodwill to be a finite lived asset that requires amortization over an estimated useful life to determine net income. Instead, goodwill and intangible assets may have indefinite useful lives and if so would need to be evaluated at least annually for impairment. However, certain intangible assets with finite useful lives would continue to be amortized.
The intent of the proposed standard is to be consistent with the concept of representational faithfulness addressed in FASB Concepts Statement No. 2, “Qualitative Characteristics of Accounting Information.” The ED proposes guidance related to impairment valuation. Specifically, one of two methods is allowed depending on a reporting unit’s primary support:
1. Qualitative evaluation; when the primary support is by resources other than contributions
2. Fair-value-based evaluation; which is currently required by for-profit entities.
Independent institutions would be required to apply the provisions in the ED prospectively in the fiscal year that begins approximately six months after the issuance of a final statement. NACUBO encourages independent institutions to read and respond to the questions outlined in the ED by the comment deadline, January 29, 2007. NACUBO plans to comment based on input from NACUBO’s Accounting Principles Council, but encourages all members to provide insights and contribute to the letter. Finally, the FASB plans to hold one or more public roundtable meetings in Norwalk, Connecticut, on March 27, 2007, to discuss the ED. Members with either feedback on the ED or an interest in attending the public roundtables should contact Sue Menditto, director, accounting policy.
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