Can a customer relationship ever warrant an indefinite life?

Most respondents to this question posed in the popular BV Professionals discussion group on LinkedIn say no, not only because it would be a “hard sell” to auditors (five years ago, as one commenter notes, who would have thought customers like General Motors could go away or Lehman Brothers lose its brand?).

More comments:

• “I have a client whose customers are about as good a candidate for indefinite-lived as you can get. Some of their customers have been around for 50 years, and we (with management input) have given their customer relations a finite life. I think you would need to make a VERY strong case, and even then it may not fly with the auditors.”
• “We had a client whose customer contracts were ‘evergreen’ due to state legislation. It was hard for the auditors to argue with that.”
• “Even in the case of an ‘evergreen’ contract…I would suggest that state legislation could change in the future… Given the reality of relationships: they are ALL perishable, and…should NEVER have an indefinite life.”
• “As a rule I never say never. I began doing purchase allocations for financial reporting…back in 1995 and I have had only one case: a captive customer situation. If the customer went away, the business was out of business.”

Analysts also might want to look at ASC 350, Intangibles—Goodwill and Other (formerly FAS 142) for insight into what auditors are looking for, in particular, paragraph 350-30-55-28F. And they will certainly want to look for Valuation of Customer-Related Intangible Assets for Financial Reporting Purposes, forthcoming best practices guidance from The Appraisal Foundation’s Working Group #2. The discussion paper has been through one complete review, says P.J. Patel (Valuation Research Corp.), who sits on the Working Group. He expects two to three more reviews before public exposure, most likely this summer. The discussion draft will touch on economic vs. accounting lives, but consensus suggests perpetual customers “are very rare,” Patel says. “In practice, I’ve never concluded an indefinite life.”