FASB Issues Accounting Alternative for Private Companies on Intangible Assets in Business Combinations: Accounting Standards Update (ASU) 2014-18

December 23, 2014

Today, the FASB issued ASU 2014-18, Business Combinations: Accounting for Identifiable Intangible Assets in a Business Combination.  ASU 2014-18 is based on a consensus reached by the Private Company Council (PCC) and it amends FASB Accounting Standards Codification (FASB ASC) 805, Business Combinations. The new guidance allows a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination. In this alternative, a private company would no longer recognize the following separate from goodwill:

  • Customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business
  • Noncompetition agreements

Many customer-related intangible assets, because they are not capable of being sold or licensed independently from the other assets of the business, would not be separately recognized under the provisions of ASU 2014-18. However, some customer-related intangible assets that are capable of being sold or licensed independently would continue to be separately recognized—such as mortgage servicing rights, commodity supply contracts, core deposits, and customer information (for example, names and contact information).

The decision to adopt the accounting alternative must be made upon the occurrence of the first transaction within the scope of this accounting alternative. If the transaction occurs in the first fiscal year beginning after December 15, 2015, the adoption will be effective for that fiscal year and all periods thereafter. If the transaction occurs in fiscal years beginning after December 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 yet been made available for issuance.

A private company that elects the accounting alternative in ASU  2014-18 must also adopt the private company alternative to amortize goodwill as described in ASU 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill. However, a private company that elects the accounting alternative in ASU 2014-02 is not required to adopt the amendments in ASU 2014-18.

The CPEA issued a report on this accounting alternative in October. You can also view the full text of ASU 2014-18. The CPEA will provide additional details about the ASU in our January 2015 report.

The CPEA provides non-authoritative guidance on accounting, auditing, attestation, compliance and SSARS standards. Official AICPA positions are determined through certain specific committee procedures, due process and extensive deliberation. The views expressed by CPEA staff in this report are expressed for the purposes of providing member services and other purposes, but not for the purposes of providing accounting services or practicing public accounting. The CPEA makes no warranties or represenations concerning the accuracy of any reports issued.

Copyright 2014 by American Institute of Certified Public Accountants, Inc. New York, NC 10036-8775. All rights reserved. For more information about the procedure for requesting permission to make copies of any part of this work, please e-mail copyright@aicpa.org with your request. otherwise, requests should be written and mailed to the Permission Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110