An article in the second quarter 2002 issue of the SRC Insights, "In With the New: Accounting for Goodwill and Other Intangible Assets under FAS 142," discussed the accounting for goodwill and other intangible assets under FAS 142. At that time, FASB had issued an Exposure Draft that addressed the continued applicability of FAS 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, which relates to the recognition of intangibles in business combinations involving stock holder-owned financial institutions.
After reviewing public comments and responses to the Exposure Draft and conducting further analysis, FASB concluded that FAS 141 provides sufficient guidance for most business combinations involving stock holder-owned financial institutions and that the specialized industry guidance in FAS 72 and Interpretation 9 would no longer be necessary. Hence, FASB issued FAS 147, Acquisitions of Certain Financial Institutions, to amend and supercede FAS 72, FAS 144, and FASB Interpretation No. 9.
Except for acquisitions between two or more mutual enterprises that are financial institutions (i.e., mutual savings banks or mutual credit unions), FAS 147 removes acquisitions of financial institutions from the scope of both FAS 72 and Interpretation 9 and requires such acquisitions to be accounted for in accordance with FAS 141 and FAS 142. FAS 72 and Interpretation 9 remain in effect for acquisitions between two or more mutual enterprises until FASB issues additional guidance on the accounting for these transactions.
The excess of the fair value of liabilities over the fair value of tangible and identifiable intangible assets arising from covered acquisitions represents goodwill, which should be accounted for under FAS 142. Thus, the issuance of FAS 147 eliminates unidentifiable intangible assets that were recognized under FAS 72. Previously recognized unidentifiable intangible assets resulting from business combinations should be reclassified to goodwill and tested for impairment in accordance with FAS 142.
FAS 147 also amends FAS 144, Accounting for the Impairment of Disposal of Long-Lived Assets, to include long-term customer-relationship intangible assets of financial institutions. These long-lived assets, such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets, are subject to the same impairment test that FAS 144 requires for other long-lived assets that are held and used.
Provisions governing business acquisitions are effective for transactions completed on or after October 1, 2002. The requirements relating to the inclusion of long-term customer-relationship intangible assets in FAS 144 became effective on October 1, 2002. Finally, transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted.
Questions on the application of FAS 147 for financial reporting purposes should be directed to the company's external auditor or other qualified individual. Institutions supervised by the Federal Reserve Bank of Philadelphia that have questions concerning the appropriate application of FAS 141, 142, or 147 for regulatory reporting purposes should contact Eddy Hsiao, Senior Examiner, at (215) 574-3772.
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.