The Financial Accounting Standards Board this week reviewed feedback it received on whether it should update standards on intangibles but made no decision, according to a release on its website.
The meeting came roughly four months after the ending of the FASB public comment period regarding potential project objectives on how companies account for intangibles — properties such as brand recognition, copyrights, patents, customer relationships and customer lists — which are considered, with some exceptions, assets when acquired, such as through a merger or sale, and as an expense when developed internally.
The board will consider the input it has received to decide if a project on intangibles should be added to the board’s technical agenda along with the possible scope and objective of this project, a FASB staff member said at a board meeting Wednesday.
While the responses were mixed, most agreed that there was no “pervasive need” to create one comprehensive principles-based standard that consistently addresses recognition, measurement, presentation and disclosure of intangibles, FASB Senior Project Manager Jill Switter said Wednesday.
The public comments, including over 40 letters from a range of stakeholders, instead suggested that because of the many different types of intangibles, how they are recognized should vary based on the nature of the intangible, its stage of development and how it was acquired, Switter said.
FASB board member Frederick L. Cannon agreed, after board members were asked for their views on the responses. “It was clear in the comment letters that one-size-fits-all accounting for intangibles simply doesn't work,” Cannon said during the meeting.
Responses came from public and private company preparers, academics, professional associations, banks and pharma and tech companies, including Apple. Among the responses was a May 30 letter from the CFA Institute which described intangibles as one of financial accounting’s “hard problems.”
“The question for the Board is whether the accounting for and disclosure of intangibles makes sense in an economy that has shifted from manufacturing to services and technology companies for which intangibles are the primary value driver,” wrote co-authors Sandra J. Peters and Matthew P. Winters, of the CFA’s Global Financial Reporting Advocacy group. The co-authors noted one reason more progress hasn’t been made in the area is that investors have limited information, leaving them in a “Catch-22” situation.
“Without more information about what unrecognized intangibles exist, their basic attributes, and approximate amounts, the Board cannot develop decision useful recognition and measurement approaches for them,” according to the letter, which cited a recent survey that found that investors “support” current guidance for acquired intangibles and measurement guidance except for “the lack of timeliness and transparency of impairments.”
They suggested a “disclosure first” approach that would require entities to provide basic information about intangibles including the amounts recognized on the income statement for developing them; the types and costs of intangibles held and used by the entity; and other information that management uses to value intangibles and measure their performance internally.
“From that starting point, the Board and investors will have far more information to consider what recognition and measurement approaches are decision useful and judge the potential reporting outcomes of different approaches,” they said.
Separately, Apple Senior Director, Corporate Accounting Chris Kondo, in a one-page May 15 letter, indicated the tech giant’s interest in participating in discussions if the board pursues other projects related to the intangibles invitation to comment. “We commend the Board for its thoughtful approach in deciding which intangibles-related projects to pursue as a result of its 2021 Agenda Consultation,” the letter states, noting that Apple participated in informational sessions on a standards update related to internal-use software. The FASB published new guidance on accounting for internal-use software last week, CFO Dive previously reported.
