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Standards Board to Set Intangible-Assets Rules

Accounting: FASB will establish guidelines aimed at giving creditors, investors clearer picture of a company's worth.

January 10, 2002|JUDY MATHEWSON | BLOOMBERG NEWS

WASHINGTON — The panel that sets U.S. accounting rules decided Wednesday to set standards for valuing brand names, customer lists, patent rights and other intangible assets.

The Financial Accounting Standards Board also voted to seek public comment on whether it should set standards for when and how firms book revenue. Revenue recognition is among the issues that have brought Xerox Corp. and many other companies under regulatory scrutiny in recent years.

"It's a good idea for the FASB to focus on this," said Walter Schuetze, a former chief accountant at the Securities and Exchange Commission. "About 50% of all SEC enforcement cases that involve financial accounting and reporting involve revenue recognition."

The FASB voted 6-1 to take on the intangibles project. The goal is to set standards for measuring intangible assets, aimed at giving investors and creditors more useful information about the true value of companies' assets.

Intangible assets have become more significant to many companies in an economy that is increasingly based on services and intellectual property rather than hard assets such as plants and equipment.

"Hundreds of recent articles, studies and consultants' reports have decried what they consider accounting's failures to respond to recent fundamental changes in the economy," an FASB memo on the issue said. "Some suggest that the important value drivers in the new economy are largely nonfinancial and that a set of measures could and should be developed that would allow investors and creditors to better evaluate and compare them with one another."

The FASB's plan has support from accounting firms such as PricewaterhouseCoopers. Its opposition includes groups such as the Institute of Management Accountants, whose members are in-house corporate accountants.

The IMA said the standards would duplicate information that is already provided in annual company reports.

Under current accounting rules, intangible assets often are recognized in financial statements only if they have been acquired by themselves or as part of a merger. That makes it difficult to compare the financial statements of a company that has just bought most of its intangible assets with one that has developed them internally and never had to report on them.

The panel also voted unanimously to solicit public comment on whether to set revenue-recognition standards, a move welcomed by stock analysts' groups such as the Assn. for Investment Management and Research.

Revenue recognition at Xerox, the largest copier company, has drawn SEC scrutiny since James Bingham, a former assistant treasurer, claimed the company might have improperly booked about $140 million in revenue.

Xerox spokeswoman Christa Carone declined to comment on the FASB's vote.

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