In the Winter 2015 edition of our Valuation Perspectives newsletter, we noted that in December 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-18, which provides private companies with an accounting alternative that, in a business combination, would result in separately recognizing fewer intangible assets.
Specifically, if elected, a privately-held company would not be required to break-out from goodwill (1) customer-related intangible assets (unless capable of being sold or licensed independently from other assets) and (2) non-competition agreements.
In making the election, a private company would still be in compliance with generally accepted accounting principles (GAAP). However, the presentation of that company’s financial statements might differ from that of a public company’s financial statements, which would also comply with GAAP.
Same GAAP. Different standards.
Edward W. Trott, a member of FASB from October 1999 to June 2007, wrote an article that appeared on CFO.com addressing this issue, “Exceptions for Private Companies are Damaging the GAAP Brand.”
If you have questions or you would like to discuss how these proposed standards changes will affect your company, please contact Melissa Bizyak at 412.338.9300.
