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Journal entry — PCC makes decisions about alternative accounting for identifiable intangible assets and discusses stock-based compensation

Published on: Sep 19, 2014

At its meeting this week, the Private Company Council (PCC) finalized a proposal that would give private companies the option of recognizing fewer intangible assets in a business combination. The PCC voted to send the proposal to the FASB for endorsement within the next few weeks. In addition, the PCC discussed potential ways to improve the accounting for stock-based compensation for private companies.

Identifiable Intangible Assets

The PCC tentatively decided the following regarding alternative accounting for identifiable intangible assets:

  • Scope — Favorable customer contracts are intangible assets and are within the scope of the proposal, while unfavorable contracts are recognized liabilities and outside its scope. Contract assets1 are also excluded from the proposal’s scope.
  • Recognition — The PCC’s accounting alternative would, in a business combination, preclude the recognition of intangible assets for noncompete agreements (NCAs) and customer-related intangible assets that are not capable of being sold or licensed independently. Also, the PCC will not provide additional guidance on whether an NCA is part of a business combination or a separate transaction.
  • Disclosure — An entity that elects to adopt this accounting alternative would not be required to provide disclosures in addition to the existing disclosure requirements in ASC 8052 for intangible assets that are subsumed into goodwill.
  • Linkage with goodwill alternative — The PCC reaffirmed its previous decision that entities electing the intangible accounting alternative in PCC Issue 13-01A3 would also be required to adopt the accounting alternative for goodwill under ASU 2014-02.4 However, entities electing to adopt the goodwill alternative in ASU 2014-02 would not be required to also adopt the accounting alternative in PCC Issue 13-01A.
  • Effective date and transition — For an entity that elects to adopt this accounting alternative, the proposed guidance would apply to intangible assets that arise from business combinations entered into during the first annual period beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early application would be permitted for any annual period for which an entity’s annual financial statements have not been issued. In addition, an entity would apply this accounting alternative prospectively to intangible assets arising from business combinations entered into after the effective date of the FASB’s final ASU.

Stock-Based Compensation

The PCC continued discussing complexities related to private-company accounting for stock-based compensation. The PCC and FASB Board members agreed that instead of commencing a project on stock-based compensation, the PCC would incorporate its views on this topic into the separate stock-based compensation project that the FASB is expected to undertake under its simplification initiative.

Next Steps

The PCC’s next meeting is scheduled for December 11, 2014. Discussion is likely to include the results of the FASB staff’s research on a second phase of its project to define a public business entity, in which the recently issued definition would supersede all similar terms (e.g., “public entity” in ASC 2805) that distinguish private and public companies throughout U.S. GAAP.

A recap of the meeting and issue summaries are available on the FASB’s Web site.


1 FASB Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, defines a contract asset as an “entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).”

2 FASB Accounting Standards Codification Topic 805, Business Combinations.

3 PCC Issue No. 13-01A, “Accounting for Identifiable Intangible Assets in a Business Combination.”

4 FASB Accounting Standards Update No. 2014-02, Accounting for Goodwill — a consensus of the Private Company Council.

5 FASB Accounting Standards Codification Topic 280, Segment Reporting.

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