THE PENDULUM SWINGS…

A Little ASC 805

WRITTEN BY:

Trent Read, Partner at EP

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This blog post was originally posted as A PREVIOUS LINKEDIN POST

BELIEVE ME, I KNOW FROM MY OWN EXPERIENCE. 

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.

YOU MAY WANT TO STAY THE CURRENT COURSE.

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.

So although it is nice to see the pendulum swing a bit as we distance ourselves from the accounting scandals that led to where we are, I would recommend that, unless you are triple dog sure that your company will never be public or get acquired by a public company, you keep jumping through the compliance hoops and pick a provider that makes it as painless as possible…I happen to know one.

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Trent Read - PartnerAUTHORED BY TRENT READ

Trent has been a CFO of two venture/growth equity-backed companies that ranked on Inc. Magazine’s list of fastest growing companies in the country which he successfully led from their infancy to full liquidity events. He began his career as an Analyst in investment banking with Deutsche Bank. He was then a Senior Financial Analyst for a $200 million business unit of Honeywell. He then returned to investment banking as an Associate and then VP at Wachovia Securities and Sagent Advisors respectively. He worked with media, digital media, telecom, software/SaaS, and internet infrastructure companies on transactions that varied from multi-billion dollar LBOs to small growth equity capital raises. Trent is now a partner at EP and is the head of EP’s Utah valuation practice. 

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    2018-06-19T21:29:05+00:00