FSP 142-3 on determining useful life of intangibles

BVWireIssue #68-1
May 7, 2008

Last week the Financial Accounting Standards Board (FASB) released FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets.  The FSP amends the relevant factors to consider when developing renewal or extension assumptions in determining the useful life of a recognized intangible asset under FAS 142, Goodwill and Other Intangible Assets.  According to the preamble, “the intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP).” 

As expected, its key provision permits consideration of an entity’s historic experience with renewing the intangibles in question, adjusted for the entity-specific factors listed in FAS 142 (paragraph 11).  If an entity lacks historical experience, “it shall consider the assumptions that market participants would use consistent with the highest and best use of the asset,” also adjusted for FAS 142 factors.  In applying the income approach, “an entity shall consider the period of expected cash flows used to measure the fair value of the asset,” as adjusted.  The FSP provides two illustrative examples—the first concerning a technology license and the second on customer relationships.  FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with no early adoption. To access a complete copy of the FSP, click here. 

FASB makes progress on hedging.  In last week’s Board meeting, FASB members decided to propose amendments relating to two standards: FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and FAS 133,  Accounting for Derivative Instruments and Hedging Activities.  “The proposed amendments would be effective fiscal years ending on or after Nov. 15, 2008, the proposed FSP is expected to be issued by August,” says a new FEI posting, “and a question in the notice to recipients will address practicality of the effective date.”  In another move, the Board decided not to pursue a project to define public versus nonpublic (private) entities.

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