FAS 142: Developing a Framework for Assessing the Useful Life of Branded Pharmaceutical Products
Journal of Theoretical Accounting Research, Volume 2, Issue 2, Spring 2007
13 Pages Posted: 22 Mar 2012 Last revised: 1 Nov 2012
Date Written: October 5, 2005
In 2001 the Financial Accounting Standards Board issued FAS 142 Goodwill and Intangible Assets, which expanded the accounting guidance for intangible assets. These changes were particularly significant for companies in industries that rely heavily on intellectual capital to generate future cash flows, are highly acquisitive, or have invested heavily in intangible assets. The complex nature of branded pharmaceutical products introduces unique challenges in applying the new standard's framework for assessing the useful lives of products. This study examines this issue by considering how the expanded rules surrounding useful life assessment impact branded pharmaceutical products, and proposing a qualitative framework for assessing the useful lives of branded pharmaceutical products.
An effective framework for assessing the useful life of pharmaceutical related intangible assets must consider all of the key factors that define a branded pharmaceutical product's value and expected useful life. Most existing frameworks for assessing the useful lives of intangible assets tend to focus exclusively on quantitative metrics such as historical trends for the specific asset or similar assets. Relying solely on quantitative factors, however, can be problematic when assessing the useful lives of intangible assets with unique value propositions. This is particularly the case with branded pharmaceutical products, whose value and longevity is affected by a variety of qualitative product specific factors that uniquely impact the asset's value and associated economic life. This study attempts to expand current theory and practice surrounding the useful lives of intangible assets by proposing a framework for assessing useful lives that considers product specific qualitative factors. This framework results in a less biased useful life estimate for branded pharmaceutical products that is grounded in product specific attributes.
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