Chapter 21

Valuation of Intangible Assets

INTRODUCTION

Business combinations are among the largest transactions undertaken by entities. They are often global transactions where having converged guidance is essential—the only way to level the financial playing field. Beginning January 1, 2009, the guidance for fair value measurements (ASC Topic 820) and for business combinations (ASC Topic 805), including noncontrolling interests (ASC Topic 810) for calendar-year companies, will be required for generally accepted accounting principles (GAAP) financial statements for all companies, public and private.

This regulatory change reflected the Financial Accounting Standards Board (FASB)’s recognition of the need for international comparability of accounting standards (i.e., to bring U.S. accounting standards more in line with worldwide GAAP). As a result of capitalizing intangible assets and goodwill, the income statement bears additional amortization reflecting the write-off of these capitalized assets.

This chapter discusses changes in regulatory requirements leading to the identification and measurement of intangibles. It discusses at length the FASB’s Accounting Standards Codification (ASC or Codification), which incorporates SFAS 141R and SFAS 142, and the treatment of in-process research and development (IPR&D). For more information related to fair value beyond this chapter, see Michael Mard, Jim Hitchner, and Steve Hyden, Valuation for Financial Reporting: Fair Value, Business ...

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