IN THE LAST FEW YEARS, ACCOUNTING POLICYMAKERS HAVE RELAXED CERTAIN REQUIREMENTS TO ASSIGN VALUE OF INTANGIBLE ASSETS AS PART OF A PURCHASE PRICE ALLOCATION (PPA)
As discussed in a previous blog post. This trend looks to continue, most recently with the FASB presenting an Accounting Standards Update (“ASU”) entitled “Clarifying the Definition of a Business”. The proposed changes that the ASU recommend to ASC 805 could potentially eliminate instances where fair value measurements under purchase accounting rules have previously been required.
In essence, the proposed changes clarify instances where it is unclear whether a transaction constitutes a simple asset purchase or a business acquisition that would require purchase accounting. The update would define a business as having an “input” and a “substantive process”, which together contribute to the ability to create “outputs”. The update also explains that an acquired asset (or assets) would not be defined as a business, if substantially all of the value would be assigned to a single asset or a group of similar identifiable assets.
AUTHORED 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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