On September 16, 2014, the Private Company Council (PCC) reached a consensus to provide an alternative that would exempt private companies from separately recognizing and measuring non-competition agreements and customer related intangible assets that are not capable of being sold or licensed independently in a business combination.  Customer related intangible assets often would not meet the criterion for recognition but some items that may meet the criterion include mortgage servicing rights, commodity supply contracts and core deposits.  The approved alternative is still subject to final endorsement by the Financial Accounting Standards Board (FASB).

The PCC decided that disclosures under Topic 805, Business Combinations, would continue to apply under this alternative including a qualitative description of intangible assets that do not qualify for separate recognition.

Ramifications of Electing the Alternative

If an entity elects the alternative under Issue No. 13-01A it would also require the adoption of Accounting Standards Update (ASU) 2014-02, Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council). However, the election of ASU 2014-02 does not require the adoption of the alternative under Issue No. 13-01A.

If elected, the alternative should be applied prospectively for all business combinations entered into after the effective date with no retrospective application.  Current effective date would be for business combinations entered into in the first annual period beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016.  Early adoption would be permitted for any annual period for which an entity’s annual financial statements have not yet been made available for issuance.