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In late December 2014, the Financial Accounting Standards Board (FASB) issued an update to U.S. Generally Accepted Accounting Principles (GAAP) providing an accounting alternative for private companies that acquire intangible assets in a business combination, investments accounted for under the equity method or upon fresh-start accounting. ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination had been proposed by the Private Company Council and subsequently endorsed by the FASB.
ASU 2014-18 applies to all entities except for public business and non-profit entities (credit unions are considered private companies in business combinations, therefore the accounting standard is applicable) and was designed to assist these entities by reducing the cost and complexity of accounting for business combinations and other related transactions.
This accounting alternative allows eligible companies to no longer recognize the following separate from goodwill, accordingly recognizing more goodwill:
An entity that elects this accounting alternative must adopt the accounting alternative for amortizing goodwill prospectively, if they haven’t already made this election.
Under current U.S. GAAP, all acquiring entities are required to recognize and measure most assets and liabilities assumed in a business combination at their acquisition date fair value, including all identifiable intangible assets meeting either contractual, legal criterion or if the identifiable intangible asset meets the separable criterion as defined by FASB.
The accounting alternative is effective upon the first eligible transaction entered into in an annual period beginning after Dec. 15, 2015, and will be required to be applied to all future qualifying transaction after the adoption date. If the transaction occurs in fiscal years beginning after Dec. 15, 2016, the adoption will be effective in the interim period that includes the date of that first transaction and all periods thereafter.
Early application is permitted for any interim and annual financial statements that have not been made available for issuance.
Before electing this alternative, you need to consider the potential impact on your overall accounting. With every day that passes, it may become increasingly difficult to retrospectively adjust the fair value of identifiable assets consolidated into goodwill.
Contact Doeren Mayhew’s accounting and assurance professionals in Michigan and Houston to help determine if this alternative is best suited for your company. If the answer is yes, we stand ready to assist with its implementation.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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