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The Financial Accounting Standards Board better known as FASB gives accounting professionals and financial executives the source of the current authoritative accounting pronouncements. The FASB serves as the backbone for many accounting standards. In specific, one accounting ruling is the “Goodwill and other Intangible Assets” which is Number 142 on the list of FASB rulings and standards.
There are different classes in which to define an intangible asset. The categories are intangible assets with a finite (limited) life, intangible assets with an indefinite life, and goodwill. The intangible assets that are amortized are the assets with a finite life. Its useful life is determined by the longevity that the assets will continue to increase cash flow by the company. In order to determine the amount an intangible asset should be amortized is cost less the residual value, which is the same formula used to determine the depreciation of a tangible asset. In determining the intangible assets with an indefinite life, a company must define an intangible asset. Intangible assets that are defined as having an indefinite life are trademarks and trade names. Finally, goodwill is an unidentifiable intangible asset. Employees of a company are goodwill to the company. The employees help the companys revenue increase. The employees are often referred to as “intellectual capital” because they are an unrecorded asset. Goodwill is a substantial intangible asset because you have “indirect” assets e.g. employees cannot be sold to another company nor can the geographical location be sold without selling the other assets.
In the FASB ruling, Statement 142 improves financial reporting because the financial statements that utilize goodwill and other intangible assets will help the company understand the effects of the assets. This statement was issued based on the importance of intangible assets to a company. Intangible assets needed to receive more recognition in financial statements then the amount that was included. In the FASB statement, there is a contrasting of Statement 142 and Opinion No. 17.