Comments are due soon—October 7—on the FASB’s Invitation to Comment (ITC) on how to account for certain identifiable intangible assets acquired in a business combination. Should annual goodwill impairment tests be done away with for public companies? Should other assets be subsumed into goodwill? The FASB is asking these questions and others—over two dozen in all—as it solicits feedback on this important issue.
Mohini Singh, director of the financial reporting policy group at the CFA Institute, said that her organization feels that the FASB proposal will go through “unless there is a little bit of a revolution from the user and investor community.” The CFA Institute was “very much against” the FASB’s Private Company Council allowing private companies to amortize goodwill, she says. Also, certain identifiable intangibles would not have to be broken out separately from goodwill in a business combination, such as noncompete agreements. The CFA Institute felt that having different rules for different companies would decrease comparability. And, while one of the ideas was to decrease complexity for private companies, the CFA Institute felt it would actually increase complexity for users of financial information because of the decrease in transparency. The CFA Institute’s objections are fully laid out in a position paper on this topic, and it is also very much against the proposal to allow public companies to amortize goodwill.
Also of note is a first in a series of articles from the IVSC, “Is Goodwill a Wasting Asset?” The article concludes that, after a functional analysis of the components of goodwill, “the reasonable conclusion is that substantially all of goodwill is indefinite in nature.” The notion that goodwill is a wasting asset would be “inconsistent with the premise of going concern inherent in the consideration paid to acquire nearly all businesses.”
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