Disclosures About Intangible Assets
Last Updated: May 21, 2004
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
The objective of this project was to establish standards that will improve disclosure of information about intangible assets that are not recognized in financial statements. Those unrecognized intangible assets include assets that are developed internally (such as brand names and customer relationships) and those that are acquired and written off immediately (acquired in-process research and development).
This project was inactive and at its January 14, 2004 meeting, the Board removed this project from its research agenda.
Summary of Tentative Decisions
Project Scope and Other Decisions
At the February 13, 2002 Board meeting, the Board refined the scope of the project. The refined scope calls for disclosure about intangible assets that are not currently recognized in statements of financial position but would have been recognized if acquired in a business combination under FASB Statement No. 141, Business Combinations. That decision limits the scope to intangible assets that are either grounded in contracts or other legal rights or are separable from the business. The scope also includes in-process research and development assets that, under FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, are written off to expense on the day they are acquired. The scope could perhaps also include recognized intangible assets to the extent that the disclosures require fair values or other information different from the disclosures required in Statement 141 and FASB Statement No. 142, Goodwill and Other Intangible Assets.
This scope has the important practical advantage of relying on the definitions and scope just set forth in Statements 141 and 142 and on the implementation guidance and practice that is being developed for those Statements. For constituents, this scope will result in one set of definitional standards and guidance to apply and learn to use, not two. Those advantages appear to outweigh the disappointment to advocates of disclosure about knowledge capital, ecological attitudes, and other non-contractual, non-separable intangibles that fall outside that scope.
The Board also tentatively decided that the qualitative and quantitative information still to be specified in later meetings should be reported by classes determined using the principles of Statement 142. Statement 142 calls for disclosures about recognized intangible assets subdivided by intangible asset class, defined therein as "a group of intangible assets that are similar, either by their nature or by their use in the operations of an entity." The Board made the decision to call for the same subdivision for unrecognized intangible assets after considering three other alternatives developed by the staff: (1) reporting by Statement 141’s broad groups of intangible assets, which are listed in Appendix A, paragraph A14 (marketing-related, customer-related, artistic-related, contract-based, and technology-based); (2) reporting by operating segment, as in FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information; and (3) reporting by industry. The Board also decided to work toward required disclosures about intangible assets, rather than voluntary disclosures.
At the February 27, 2002 Board meeting, the Board began its consideration of whether to call for quantitative disclosures about intangible assets and, if so, what kind of quantitative information to call for. The Board considered several fair-value-based and cost-based approaches to disclosing quantitative information. The fair-value-based approaches to quantitative disclosures could refer to Statement 141 for guidance on measuring fair value. A fair-value-based approach would provide information that researchers and exceptionally diligent investors that want it now have to crudely estimate, using researcher-generated models and proxies or other limited data. The Board considered several possible options for disclosing fair value information, which are listed below in order both of increasing perceived relevance to users and of increasing apparent challenges for preparers.
- Pro forma Statement 142 accounting for unrecognized intangible assets. That might disclose values of newly generated assets, amortization, write-offs, and ending balance.
- Values of unrecognized intangible assets at the end of the current year(s).
- Values of all intangible assets at the end of the current year(s) (along the lines of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments).
- Values and changes in the values of all intangible assets, analyzed to distinguish assets added or disposed of from changes in values of assets retained.
The cost-based approaches to disclosing quantitative information could refer to Statement 142 for guidance on identifying the assets and perhaps to FASB Statement No. 2, Accounting for Research and Development Costs, for guidance in what information to disclose. The Board considered several possible options for disclosing cost-based information, which are listed below.
- Expenditures in current year(s), without distinguishing successful from unsuccessful efforts. That information is now provided for research and development costs, and several studies have shown it to be value-relevant.
- Pro forma successful efforts accounting, like that modeled and shown to be value-relevant in simulation research and research on the actual capitalization of software costs in the U.S. and of various intangible assets overseas. This option might disclose accumulation of costs pending results, additions to the pro forma asset, amortization, write-offs, and ending balance. The disclosure requirement could refer to Statement 142 for guidance on amortization and write-offs.
- Pro forma retroactive successful efforts accounting, a variation on successful efforts accounting. This possibility would expense research and development and other costs to develop intangible assets until technical feasibility is reached, and then retroactively capitalize those previously expensed costs and capitalize all further costs to complete creation of the asset.
Pending additional information, the Board decided to narrow the project’s focus to one fair-value-based and one cost-based quantitative approach: (1) disclosing the fair values of all intangible assets (both recognized and unrecognized that fall within the scope) at the end of the current year(s) or (2) disclosing expenditures in the current year(s) without distinguishing successful from unsuccessful efforts. The Board directed the staff to gather additional information from constituents about those approaches before making a final decision about quantitative disclosures.
At the April 9, 2002 Board meeting, the Board continued its consideration of whether to call for quantitative disclosures about intangible assets and, if so, what kind of quantitative information to call for. The Board reconsidered the one fair-value-based and one cost-based quantitative approach mentioned above, in light of additional information gathered since that meeting. After discussing those approaches and other aspects of the project, the Board directed the staff to focus its efforts on the development of proposed qualitative disclosures while continuing to gather information about proposed quantitative disclosures.
During the second and third quarters of 2002, the staff gathered additional information from constituents and other sources as part of its preparation to ask the Board for a decision about which, if any, quantitative and qualitative disclosures to require.
Board Meetings/Public Meeting Dates
|January 14, 2004||Board Meeting—FASB Technical Plan|
|September 5, 2002||Roundtable Meeting—Discussion about Disclosing the Fair Value of Intangible Assets
Download the Meeting Minutes
|August 28, 2002||Educational Meeting—The Financial Valuation Group and the Phillips Hitchner Firm
Download the PowerPoint Presentation
|July 30, 2002||Board Meeting—Proposed Meetings|
|April 9, 2002||Board Meeting—Quantitative Follow-up|
|February 27, 2002||Board Meeting—Quantitative Information Approach|
|February 13, 2002||Board Meeting—Scope and Classes of Intangibles|
|January 9, 2002||Board Meeting—Research on Intangible Assets, Agenda Decision|
|October 24, 2001||Board Meeting—Comment Letter Analysis|
History and Background
The staff had been evaluating possible action about intangible assets and other inadequately reported aspects of what some call the "new economy" for some time. One early result of that work was the April 2001 Special Report, Business and Financial Reporting, Challenges from the New Economy, authored by former FASB staff member Wayne S. Upton, Jr. That report can be downloaded here.
The Board issued a proposal for the new agenda project on August 17, 2001. The comment period for the proposal expired October 5, 2001. The staff received 61 comment letters in response to the proposal. The comment letters were generally in favor of the project. However, preparers expressed concerns about valuing intangibles and sharing proprietary information.
On January 9, 2002, the Board added to its technical agenda this project on Disclosure of Information about Intangible Assets Not Recognized in Financial Statements.