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‘Intangibles’ too Broad to Tackle Holistically, Targeted Disclosures Possible, FASB Signals

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The FASB will not pursue adding a holistic project to its technical agenda on intangibles, finding the topic delves into a variety of issues that would make it a tough and fruitless endeavor.

Board members on June 22, 2022, said they would, however, be willing to do a targeted disclosure-only project on intangibles, if anything. No decisions were made.

“I don’t think recognition and measurement comprehensively is likely to be a fruitful project and I don’t think disclosure comprehensively is likely to be any more fruitful because of the different types of items that we’re talking about,” FASB Vice Chair James Kroeker said.

Research done to date by FASB staff on intangibles could be used to inform the board on other projects such as disaggregation of income statement expenses, and on software costs, according to the discussions.

“A broad-based technical agenda item on recognition and measurement of intangibles, I don’t think that’s achievable,” FASB member Fred Cannon said. “And it’s not achievable probably for a really good reason, that is intangibles are very diverse – everything from films, to web applications, to goodwill, to human capital – there is a great diversity of accounting for these different things in large part because they’re so diverse,” he said. “And I don’t think we’re ever going to get to something meaningful for users on a broad-based intangible line item either recognition or even disclosures so I strongly support using this project as informative or potentially some discrete items.”

The discussion comes as the FASB is in the process of establishing its five-year technical agenda for 2022 to 2026. The accounting for and disclosure of intangibles is on the board’s research agenda to study whether it should make the cut for this crop of rulemaking topics. Intangibles was also a featured topic in Invitation-to-Comment (ITC) No. 2021-004Agenda Consultation, which was issued in June 2021 to solicit public comment about board priorities.

There are several areas of GAAP that provide accounting guidance for intangible assets, according to meeting papers.

The initial accounting requirements for intangible assets depends on whether they are internally generated or acquired. There also is specific guidance for costs related to research and development (R&D), software, and certain internally generated intangible assets.

Among concerns the board has heard is that there are numerous challenges, including: a) that the absence of recognized intangible assets creates differences between book value and market capitalization for companies with significant intangible assets; b) inconsistencies between accounting for similar intangible assets that are internally developed, acquired, or acquired in a business combination; c) the fragmented nature of existing GAAP on intangible assets because recognition requirements vary depending on the type of intangible asset; and d) the general lack of decision-useful information and disclosure about companies’ effort expended in the development and maintenance of intangible assets, including internally generated intangible assets.

Intangibles “is a area where we have received a lot of input,” FASB member Marsha Hunt said. “What I’ve taken from the input is stakeholders telling us ‘when I’m looking at a particular company I want to understand more about what is strategic to that company,’” she said. “And the intangible that is strategic to company A versus company B could be very different.”

Intangibles represent a big shift in business these days, one board member observed.

“When the FASB was founded the five largest companies were GM, Ford, Crysler, Exxon and GE – clearly tangible asset companies, you went into the factories, I’ve been in those factories, they’re massive – tons of assets,” FASB member Gary Buesser said. “Today we have Microsoft, Apple, Amazon, Google and Invedia, for example,” he said. “So the world has changed from a tangible asset world to intangible value creation.”


This article originally appeared in the June 24, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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