In a much-awaited meeting last week, the Financial Accounting Standards Board decided that purchased intangibles, which formerly had to be amortized over a useful life that could not exceed 40 years, now do not necessarily have to be amortized, and placed a 20-year cap on some intangible items.

The board said that intangible items presumed to have a life of 20 years or less can overcome that if they have clearly identifiable cash flows that will continue for more than 20 years, and must have either legal rights that extend beyond the 20 years, or an observable market.

It is possible to overcome the presumption enough to say it has an indefinite life, but it would be subject to annual review for impairment and that would be based on a fair value test, said project manager Kim Petrone. The test would prove the carrying amount of assets are not recoverable based on the fair value of the asset.

Other intangibles do not have an indefinite life, such as a copyright good for the life of an author or inventor. Those intangibles should be amortized over the life of the author. Then with legal rights that are renewable indefinitely but not marketable the company has to be able to figure out the fair value, and if not, amortize it over whatever the economic life might be. Another category of assets are the identifiable intangible assets that are not reliably measurable, such as customer relationships. Those would be recognized as part of goodwill.

Dennis Garmer, business combinations expert at PWC, said the board’s decision sounded a lot like the current international standards for intangible assets. The board has said it wants to harmonize business combinations accounting internationally.

Many U.S. companies have fought the move toward the international accounting standard because it only permits merging using the pooling method of accounting if the companies are very nearly the same size. So, if more companies have to combine using the purchase method of accounting, how much goodwill is allowed to be amortized, and over how long, becomes critical.