Financial Reporting > SFAS 141: Intangible Assets and Goodwill

In 2001, the Financial Accounting Standards Board (FASB) approved two new statements—SFAS 141 and SFAS 142—to redefine the ways in which firms report acquisitions. SFAS 141 eliminated the ability to use pooling-of-interest accounting, which had allowed firms to protect their reported earnings from acquisition amortization expenses. SFAS 142 eliminated the need to amortize goodwill, instead establishing standards for evaluating goodwill impairment on an annual basis.

These new rules have dramatically affected how businesses are acquired and which ones are targeted for acquisition. Suddenly transactions that were easily accretive are no longer so. SFAS 141 provides a framework for establishing how a purchase price should be allocated to amortizable intangible assets, un-amortizable intangible assets, and goodwill. The Statement also gives specific examples of intangible assets that should be measured for value.

However, a great deal about determining the fair value of an intangible asset is not covered in SFAS 141. Hiring experienced appraisers to measure these values and establish the assets’ economic life is critical to reaching a supportable valuation.