This blog post was originally posted as A PREVIOUS LINKEDIN POST
For any CFO of a company that is completing acquisitions, ASC 805 (the former SFAS 141) is a bit of a thorn in your side. Believe me, I know from my own experience. It’s always painful to incur compliance fees that, in your mind, do very little to move the ball forward for your business.
I can make the argument that the intent of what was SFAS 141 and is now ASC 805 was to provide investors with the most useful information possible about the intangible assets acquired in M&A transactions. In my head I know that it does provide investors and potential acquirers with better visibility into intangible assets that can make up a significant portion of the balance sheet. At the same time, I am always a fan of keeping it simple.
The requirements, though well intended, do feel overly onerous for many private companies that may be acquisitive, but have no intention of ever becoming a public company. That is why when FASB issued updated guidance on this topic late last year it was a welcome swing of the compliance pendulum that simplified the requirements for private companies allowing for the recognition of fewer intangible assets in an acquisition and select other transactions.
The issue remains, however, that if those private companies have hopes of ever becoming a public company or being acquired by a public company they may want to stay the current course. The standards may be loosened for public companies as well at some future point, but until then it may make sense to note the option, but stick with the current best practice of engaging an independent valuation firm to help your company be audit ready with a purchase price allocation. I was the CFO of two fast growing, small private companies and both were acquired by public companies. It would have been excruciating to go back in time in the midst of due diligence and rework our financials.