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April 2014 Technology Insider UHY LLP Mid-Atlantic U H Y L L P i n p
April 2014
Technology Insider
UHY LLP
Mid-Atlantic
U H Y
L L P
i n
p r o v i d e s
s o l u t i o n s
t o
f i r m s
a c c o u n t i n g ,
t a x
a n d
t e c h n o l o g y
c o n s u l t i n g .
Goodwill
Website Development Costs
Impairment
A detailed look at what to
expense and what to capitalize
By Marlon Bernal, Principal
By Cindy McGiffin, Senior Accountant
T he Financial
A c c o u n t i n g
a n d a r d s
S t
A n area of con-
fusion I see
accounting rules on what to capital-
ize and what to expense.
Board
(FASB)
has
issued
an
frequently on au-
dits is the treat-
ment of website
d e v e l o p m e n t
costs. Clients tend
to place their en-
tire website devel-
opment costs in one bucket, either
expensing—or capitalizing—every-
thing. The correct treatment is some-
where in the middle, and knowing
which activities are which is impor-
update to U.S.
We b s i t e
o p m e n t
d
generally
ac-
c o
e v e l -
s t s
cepted account-
can generally
b e d i v i d e d
into various
ing
principles
s t a g e s .
T h e
(GAAP) that provide an alternative
for private companies on the sub-
sequent accounting for goodwill.
f o l l o w i n g
table summa-
The update is a consensus of the
Private Company Council
(PCC)
r i z e s
t h e
a c -
that was endorsed by the FASB.
counting treatment
for the most common ac ti v ities in
FASB Accounting Standards Up-
tant. Fortunately, there are detailed
e a c h st a g e . T h e t a b l e is b a s e d o n
FASB ASC 350-50 Intangibles—Good-
date No. 2014-02, Intangibles—
Goodwill and Other (Topic 350):
w i l l
m e n t
a n d
O t h e r : We b s i t e D e v e l o p -
C o s t s .
I t
i s
i n t e n d e d
a s
a n
Imagine the delight of your
a u d i t o r s w h e n t h e y s e e
t h e s p e c t a c u l a r j o b
y o u ’ v e d o n e o f p r o p e r l y
a c c o u n t i n g f o r y o u r
website development costs!
overview and exceptions may apply.
Ask your website development con-
sultant to provide a breakdown of
their fees based on this table (see
page 2). Imagine the delight of your
auditors when they see the spectac-
ular job you’ve done of properly ac-
counting for your website develop-
ment costs!
Accounting for Goodwill, allows a
private company to subsequently
amortize goodwill on a straight-
line basis over a period of ten
years, or less if the company can
demonstrate that another useful
life is more appropriate. It also al-
lows a private company to apply a
simplified impairment model to
goodwill. Goodwill is the residual
asset recognized in a business
combination after recognizing all
continued on page 2
continued on page 2
the next level of service
For more information,
please contact Jim Peacock
at jpeacock@uhy-us.com
8 6 0 1 R o b e r t F u l t o n D r i v e
l
S u i t e 2 1 0
l
C o l u m b i a , M D 2 1 0 4 6
l
4 1 0 - 4 2 3 - 4 8 0 0
l
Fa x 4 1 0 - 3 8 1 - 5 5 3 8
l
w w w. u h y - u s. c o m
the next level of service Goodwill Impairment Website Development Costs, continued from page 1 continued from
the next level of service
Goodwill Impairment
Website Development Costs, continued from page 1
continued from page 1
Stage
Activities
Treatment
other identifiable assets acquired
and liabilities assumed.
Planning
■ Developing the
business/project plan
■ Determining functionalities
■ Identifying hardware and
web applications/software
■ Conceptual formation of
graphics and content
■ Selection of vendor(s)
Expense
Application and
Capitalize
Infrastructure
For years, private company stake-
holders have made the goodwill
impairment issue a priority given
its onerous and costly compliance
efforts. The new standard ad-
dresses private company stake-
holder concerns by reducing the
cost and complexity of compliance,
while still providing decision-useful
information for users of private
company financial statements.
Development
■ Acquiring or developing hardware
and software needed to operate
the website
■ Obtaining domain name
■ Developing or acquiring the software
for website operations, database
and applications
■ Purchasing the hardware
■ Installing the hardware/software
■ Testing the hardware/software
Graphics
Development
■ Overall design of web pages
(design, layout, color, images)
Capitalize
Under the accounting alternative,
goodwill is tested for impairment
when a triggering event occurs
that indicates that the fair value
of a company (or a reporting unit)
is lower than its carrying value. A
private company that elects the
accounting alternative is further
required to make an accounting
policy election to test goodwill for
impairment at either the company
level or the reporting-unit level.
Content
■ Data entry and data conversion
of content
Expense
Development
■ Software used to integrate a
database with the website
Capitalize
Operating Stage
■ Training employees on the new website
■ Registering the website with internet
search engines
■ User administration activities
■ Backups
■ On-going maintenance
Expense
The combination of the amortiza-
tion method and the relief from
the requirement to test goodwill
for impairment at least annually is
expected to result in significant
cost savings for many private com-
panies that carry goodwill on
their balance sheets. This is be-
cause amortization should reduce
the likelihood of impairments,
and private companies generally
will test goodwill for impairment
less frequently.
■ Upgrades and enhancements that
increase functionality
Capitalize
We at UHY LLP are here to help
you implement the accounting al-
ternative for goodwill.
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