Intangible asset valuation jumped into the headlines this week as these assets become more and more important to growing companies. We discuss a couple of articles on this issue, specifically potential changes to ASC 350 and accounting for intangible assets in the normal course of business. Another timely article about the new revenue recognition standard, ASC 606, prompted some keen insights from a C-suite officer. And, it wouldn’t be a true GAAP Flash this month if we didn’t follow the on-going saga at Valeant; this week focuses on the challenges it may face with its auditor’s opinion under PCAOB AS 5. On to the news!

Accounting's 21st Century Challenge: How to Value Intangible Assets (March 21, 2016) – WSJ CFO Journal (@CFOJournal)

Consider this scenario: your company spends millions of dollars to develop, promote, and expand the reach of your brand, which, many years down the road, becomes synonymous with the best products you offer. Your brand certainly adds value to your company, but how does it show up in your accounting records? The short answer: it doesn’t! According to current U.S. accounting standards, companies cannot recognize internally developed intangible assets, such as brands, trademarks, customer databases, and patents. Companies only record these types of assets during acquisitions of other businesses or restructurings.

Now, analysts, investors, and professors started asking if this approach is really the best way to show the true economic value of a whole business enterprise. Opinions differ amongst these various groups, though no one argues that it could be a very daunting exercise to determine how much value to assign to these types of intangible assets! However, the discussion about this concept prompted the FASB to consider adding the valuation of intangible assets to its standard-setting agenda, which may be the first step to re-writing the guidance we know today.

Valuing Intangibles Doable, Despite Resistance (March 23, 2016) – WSJ CFO Journal (@CFOJournal)

Extra, extra! Valuation experts join the fray to discuss the feasibility of recognizing internally developed intangibles. Some company executives and investors argue that this valuation does not add much important information to financial reports, not to mention it is tedious and time consuming! In the other corner, valuation specialists assert that it is a workable process and also that it is not as difficult, or as expensive, as some people want the public to believe.

While measurement of these assets is not as precise as physical assets, certain methods, like discounted cash flow models, do a good enough job approximating such value to companies, as well as investors. Also, if intangible assets did not hold some intrinsic economic benefit, then brands and trademarks would never be developed in the first place! The beat grows louder to bring these assets onto the accounting records. Let the market judge how important the new information is!

Revenue Recognition: A View from the Trenches (March 7, 2016) – CFO.com (@CFO)

On the heels of the finalized new revenue recognition standard, ASC 606, articles flooded the press and the internet to alert companies about the significant way this guidance will change its operations and accounting functions. But, how should companies start dealing with the new standard and implementing changes to their businesses? This article, written by Shauna Watson, Global Managing Director for Finance and Accounting at RGP, provides a great outline to put others on the right path.

• Interpret the standard
• Gather data
• Manage the project
• Assess systems
• Choose a team

Her five steps break down and simplify the process, so decision makers can implement the right approach sooner, rather than later. Read this article, and save yourself and your team the pain of delayed application!

Valeant Could Have Trouble Getting Clean Opinion From Auditor (March 21, 2016) – WSJ CFO Journal (@CFOJournal)

Another week brings another unfortunate article for this embattled pharmaceutical company. Only days after announcing the potential for default on its debt obligations, Valeant points to another complication. Even if it releases its annual report prior to the April 29 deadline, these financial statements must have an unqualified opinion from its auditors. Otherwise, the company would still commit an act of default!

The ability to receive a clean opinion hinges on the fact that Valeant’s auditors must find the financial statements free of material misstatement. The restatement of prior financial statements and a looming material weakness of internal control greatly diminish the likelihood of this happening. PCAOB AS 5 requires auditors to opine on management’s assessment of its internal controls over financial reporting, which has a significant influence on whether material misstatements can exist in the financial statements without being prevented or detected! Valeant’s long road to recovery just got a lot muddier.