Perspectives

January 2004

Dealing with Intangible Assets

Recent scandals involving members of the accounting profession have shaken our historical foundations. Every aspect of our standards and conduct is being examined. A flood of pronouncements, legislation, and dialectic is affecting our future practice.

One major uncertainty confronting us is the valuation of intangible assets. SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets, attempt to resolve the issues of relevant valuations. Furthermore, SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, details “standards” for valuing this category of property.

I have always had difficulty with these two asset classifications, both as an accountant and auditor. Although I adhered to AICPA and FASB standards while in practice, in my current mode as an investor in publicly traded securities, I find that the current annual reports reflecting a high percentage of intangible and long-lived assets cause serious concern as to the true value of the entity. I do, of course, scrutinize operating statements, cash flow, and narrative addressing the future of the organization. But my balance sheet concerns linger.

I offer a possible solution to this dilemma of asset valuation and verification. Realistically, the profession is well equipped to deal with verifiable assets (e.g., cash and equivalents, receivables, and inventory). For intangibles and long-lived assets, areas in which we lack training in verification procedures, they could be reclassified as “non-verifiable assets.” Thus, in condensed form, the asset side of balance sheet would appear as follows:

Verifiable Assets
Cash and Equivalents
Receivables
Inventory
Non-Verifiable Assets
Long-Lived Assets
Intangibles

The non-verifiable assets would still comport with relevant SFASs. Other qualified professionals, such as appraisers, engineers, and Realtors, could opine on this group of assets. Such findings could be incorporated in annual reports but not be part of the auditor’s responsibility. “Valuing Intangible Assets” (CPA Journal, October 2003) casts much light on the issues involved.

Assuredly, the recommendation of delineating “Non-Verifiable Assets” requires much study and deliberation. We as a profession usually refrain from radical solutions to practice problems. The future for all CPAs requires they travel all roads while seeking the resolution of present imponderables. q

Stanley L. Cohen, CPA (Retired)
Aventura, Fla.

Keeping Up with “Proposed Legislation”

In the November issue’s Not-for-Profit Organizations department, “Proposed Legislation: Its Impact on Not-for-Profit Board Governance,” the sidebar on page 58 (“Proposed Legislation by the New York State Attorney General”) was adapted from the first draft of the legislative bill proposed by New York State Attorney General Eliot Spitzer. As a result of efforts by many interested not-for-profit groups, including the NYSSCPA, Attorney General Spitzer has since softened several of the original proposals as follows:

• A not-for-profit organization will fall under one of two, new, different levels of “verifications” to the annual report. The revised proposal raises the threshold for the more significant officer certifications from organizations with annual revenues of $250,000 to those with annual revenue of $1 million or assets at the balance sheet date of at least $3 million. All other corporations, including those below the original proposed threshold of $250,000, will be subject to verifications that are less stringent than those for the larger organizations.
• In addition to the president and treasurer, key paid staff officers such as the CEO and CFO are now permitted to sign the verifications in the annual report.
• All organizations that have an annual audit, whether statutorily required or not, will be subject to the rules regarding formation of an audit committee, unless their bylaws prohibit it.
• Only boards with more than 25 members will be required to have executive committees.
• Before a type B or C corporation can indemnify an officer, it must first notify the attorney general and give the office 30 days in which to object.

The revised bill is expected to be presented to the State Legislature in January. New York State Charities Bureau Chief William Josephson spoke at the NYSSCPA’s annual Tax-Exempt Organizations Conference on December 4, 2003, and will speak at the annual Nonprofit Organizations Conference in Rochester on January 22, and in New York City on January 29, with current updates on this legislation.

David C. Ashenfarb, CPA
Schall & Ashenfarb CPAs LLC
Chair, NYSSCPA Not-for-Profit
Organizations Committee

The Author Responds

I thank David Ashenfarb for his update on the pending legislation related to increased accountability by not-for-profit organizations. As I indicated in my article, the legislation has yet to be passed. Therefore, if the law should be enacted, its final form is unknown.

The thrust of the proposed law is on target. Whether the law is passed or not, the boards of directors and management of not-for-profit organizations must work together to improve communication and accountability related to financial matters. It is the practitioner’s role to encourage and facilitate this process. Upgrading financial reporting requirements is in the best interest of not-for profits’ boards, management, and the public.

Stanley Weiner, CFE, CPA
Cornick, Garber & Sandler LLP

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