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FASB updates trademark, licensing accounting rules

A new FASB update changes the way companies account for trademark and licensin

The Financial Accounting Standards Board on July 27 issued new guidelines designed to simplify the testing of indefinite-lived intangible assets for impairment.

"The Board expects that the revised guidance will reduce the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low," said FASB Chairman Leslie Seidman.

The intangible assets governed by the rule include trademarks, licenses, and certain distribution rights - it does not apply to goodwill. According to FASB, the rule will affect all companies - public, private and non-profit.

Before the new guidelines, companies were required to test these intangible assets every year by comparing their fair value with its carrying amount. If the carrying amount exceeded the fair value, companies were required to report an impairment loss.

The new guidelines allow companies to first determine whether an intangible asset needs to go through the comparative assessment process. Organizations can elect to perform the impairment loss test if they determine it is "more likely than not" that an asset is impaired.

This particular guideline does not apply to goodwill because FASB updated its guidelines regarding those assets earlier in the year, according to Compliance Week. These guidelines follow similar rules as the goodwill update.