2 Tech Companies That Could Benefit From This Accounting Change
The organizations that determine accounting standards -- the Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board (IASB) abroad -- are weighing potential changes for how publicly traded companies treat goodwill. When a company acquires another company for more than it's worth on paper, that premium is recorded as an intangible asset called goodwill. The rationale is that an acquired company includes things of value such as brand strength, intellectual property, or synergy potential that aren't easily quantified.
Currently, companies are required to test for goodwill on an annual basis, and if a previously acquired subsidiary is not performing as well as initially expected, the value of that goodwill must be impaired and recorded as a charge on the income statement. The proposed changes would move toward a model where goodwill is instead amortized over time.
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Source Fool.com
