The Private Company Council (PCC) continues to make significant progress in adding alternatives within accounting standards. Here’s a roundup of the latest developments.
Private Company Decision-Making Framework
In December 2013, the Financial Accounting Standards Board (FASB) and PCC issued the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. This framework will be used by the FASB and PCC in making user-relevance and cost-benefit evaluations for private companies aimed at proposing alternative treatments under U.S. Generally Accepted Accounting Principles (US GAAP).
Identifying the key differences between public and private companies was an important source of input in developing this framework. The framework identified the crucial areas where accounting guidance might differ between the two. The expectation is that this framework will help identify cost-effective alternatives for private companies and also benefit the standard setting activities for other organizations.
FASB Endorsed PCC Alternatives
In January 2014, the FASB issued two Accounting Standards Updates (ASU) for previously endorsed PCC alternatives:
- FASB ASU No. 2014-02, Accounting for Goodwill, (PCC Issue No. 13-01B) allows a private company to amortize goodwill over 10 years. Furthermore, a private company can make a policy decision to perform its impairment testing at the entity level or the reporting unit level. Previously under US GAAP, impairment testing was always performed at the reporting unit level. The alternative would be applied prospectively to any new or existing goodwill.
- FASB ASU No. 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach, (PCC Issue No. 13-03A) allows a private company a practical expedient to obtain cash flow hedge accounting treatment for swaps that meet certain conditions. This approach allows a private company to complete its hedge documentation up until financial statements are issued. It also allows for the recording of the swap at settlement value rather than fair value. The alternative would be applied on either a modified retrospective or full retrospective basis, with an election made on a swap-by-swap basis.
Both of the above are effective for fiscal years beginning after December 31, 2014, with early adoption permitted. Companies should also review the FASB's December 2013 issuance of ASU No. 2013-12, Definition of a Public Business Entity, which will have an impact on determining which entities are eligible to apply these, as well as future, alternatives.
Other Projects Currently on the PCC Agenda
The PCC has several other projects on its agenda:
- Accounting for identifiable intangibles in a business combination
- Applying variable interest entity (VIE) guidance to lessor entities under common control
Private and public companies should monitor the PCC's technical agenda as modifications to US GAAP for private companies may result in adjustments in standards applied to other entities. All companies should benefit from ways to address concerns over cost, complexity, and relevance.
Craig B. Evans can be reached at Email or 215.441.4600.