Accounting for intangible assets and goodwill

Accounting for intangible assets and goodwill
The accounting and valuation of intangible assets for financial reporting purposes is governed in
part by The Financial Accounting Standards Board (FASB) through FAS 141R, Business Combinations;
FAS 142, Goodwill and Other Intangible Assets; and FAS 157, Fair Value Measurements. These three
standards have increased the prominence of intangible assets on the face of financial statements as
well as in footnote disclosures. Having a supportable, appropriate valuation of intangible assets is
often critical to withstanding the intense scrutiny received from company auditors and the SEC.
Key questions
Purchase price allocation
How do I al ocate the purchase price
FAS 141R has now replaced FAS 141 as the new accounting standard for
of a company to its tangible and
the recording of goodwill and other intangible assets at the time of business
intangible assets?
combination. FAS 141R revises some of the key purchase accounting rules
Wil my intangibles valuation
from FAS 141. Under FAS 141R, companies are expected to make a complete
withstand the scrutiny of the SEC
and thorough effort to identify and appropriately value acquired intangible
and other authorities?
assets according to the new criteria. Our services in this area include:
What are the appropriate categories
• Identifying intangible assets
of intangible assets, and what are
• Valuing intangible assets
their useful lives?
• Determining useful lives
What plans exist for goodwil and
• Selecting amortization methods which best match the consumption
intangible asset valuation, at least
of economic benefits
annual y, after deal closing?
What are the appropriate methods
Reporting unit valuation
for assigning groups of intangible
Under FAS 142, indefinite-lived intangible assets and goodwill are tested
assets and goodwil ?
annually for impairment. Our services in this area include:
• Valuing of business reporting units
• Assisting with annual impairment tests
• Updating of valuations
Intellectual property management
CRA’s experience with developing effective strategies for the management
of intellectual property uniquely positions us to help companies leverage
their efforts related to FAS 141R and FAS 142 compliance. Our services
in this area include:
• Assisting with footnote disclosures for patent, trademark, and other major
classes of intangible assets
• Establishing a process to inventory and track the value of intangible assets
• Analyzing how holding companies can be used to manage and track
intangible assets
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Accounting for intangible assets and goodwill
Case studies
• A private equity fund retained CRA to conduct a
• An international chemical and healthcare corporation
purchase price allocation in connection with its
retained CRA to conduct appraisal work related to the
acquisitions of commercial financing businesses.
acquisition of a company in the diagnostics industry.
CRA’s primary assignment was to estimate the fair value
The acquired entity was involved in developing,
of acquired entities’ intangible assets, including customer
manufacturing, and marketing products, including
relationships, trade names, non-compete agreements,
testing kits, consumables, and systems (hardware and
order backlogs, and technology. Additionally, CRA was
software) for the nucleic acid diagnostics market. CRA’s
asked to estimate the fair value of the acquired entities’
primary assignment was to determine the fair value of
lease portfolio at the time of acquisition. Subsequent to
the company’s intangible assets in connection with the
the acquisitions, CRA helped management perform
allocation of purchase price among the acquired assets.
a FAS 142 goodwill impairment analysis and a FAS 144
Additionally, CRA was asked to determine the fair value
recoverability testing of long-lived assets of the acquired
of the acquired company’s international subsidiaries.
entities.
• CRA was retained by a publicly-traded owner of a
• CRA performed a FAS 142 and FAS 144 impairment
portfolio of apparel brands to perform trademark
analysis for a contract manufacturer. The analysis
valuations for multiple clothing brands and licenses
included recoverability testing and an impairment
in connection with a FAS 142 and FAS 144
measurement calculation under FAS 144. The
impairment analysis.
FAS 142 goodwill impairment analysis included both
a comparison of the reporting units carrying value with
• A publicly-traded biopharmaceutical company, which
its fair value as wel as a hypothetical purchase price
had just emerged out of bankruptcy protection, retained
al ocation to determine the goodwill impairment loss.
CRA to conduct its intangible asset and goodwill
impairment testing. First, CRA performed a FAS 144
• CRA prepared a purchase price allocation in connection
recoverability test of the company’s intangible asset
with a private equity fund’s acquisition of a natural
group, which included distribution agreements,
food distributor. The analysis included fair value
customer relationships, non-compete agreements, and
calculations for a portfolio of trademarks, customer
trade name. CRA then conducted a FAS 142 goodwil
lists and relationships, purchase order backlog, and
impairment analysis, which included both a comparison
non-compete agreements.
of the company’s carrying value with its fair value as
well as a hypothetical purchase price al ocation, to
determine the goodwill impairment loss.
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