FASB Simplifies Rules on Goodwill, Swaps for Private Companies

January 22, 2014 Leave a comment

January 17, 2014, 3:17 AM ET

FASB Simplifies Rules on Goodwill, Swaps for Private Companies

EMILY CHASAN

Senior Editor

Private companies will soon be able to take advantage of simpler accounting for complex swaps transactions and asset valuations after bad acquisitions. U.S. accounting rule makers on Thursday  issued the simplified alternatives, following complaints from private companies that complex rules intended for public company accounting were too costly and irrelevant to their stakeholders. The overseers of the Financial Accounting Standards Board last year created a Private Company Council to address those concerns.Under the new rules, private companies could elect a much simpler method to amortize, or reduce the value of goodwill on a straight-line basis over 10 years or less. Private firms can also adopt a simplified method for testing whether they will need to take a write-down on goodwill. Public companies are required to conduct tests annually, or sometimes more frequently, to verify the value of their goodwill and determine whether they need to take a write-down.

Private companies could also take advantage of a new rule that will simplify the hedge accounting approach used to account for some types of interest rate swaps.

“Both standards address private company stakeholder concerns by reducing the cost and complexity,” for companies, FASB Chairman Russell Golden said in a statement.

The move could be a precursor to further efforts to simplify goodwill accounting for private companies, which have long complained the process for goodwill accounting is too complex. The FASB said Thursday it is adding a project to its agenda to address goodwill accounting at public companies and nonprofits later this year.

Companies end up carrying goodwill on their books when the purchase price for an acquisition exceeds the fair value of the acquired assets.

The new standards could also have some effects on public companies, accounting firm PricewaterhouseCoopers said in a note to clients on Thursday. If a public company has to include the financial statements of nonpublic entities in their regulatory filings, they may need to “unwind” some of the accounting elections private companies have made, the firm said.

The standards take effect for most private companies after Dec. 15, 2014, but early adoption is allowed.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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