Private company reporting
The Private Company Council (PCC) continues to make brisk progress toward improving financial reporting for private companies, proposing three modifications to U.S. GAAP at its May meeting. The FASB’s projects on the definition of a non-public entity and the private company decision-making framework continue.
Key developments for private company reporting
- The FASB issued ASU No. 2014-02, Accounting for Goodwill on January 16, 2014. This standard provides private companies with an accounting alternative which is intended to simplify the accounting and reporting for goodwill. Under this alternative, a nonpublic entity is able to amortize goodwill on a straight-line basis over a period of ten years (or over a shorter period if the company demonstrates that another useful life is more appropriate). Goodwill would be subject to impairment testing only upon the occurrence of a triggering event. The impairment test can be performed at an entity-wide or reporting unit level, based upon the Company’s accounting policy election. If a quantitative impairment test is required, a one-step impairment test would be performed. The amount of the impairment would be measured by calculating the difference between the carrying amount of the entity (or reporting unit, as applicable) and its fair value. A hypothetical purchase price allocation to isolate the change in goodwill (i.e., step two) would no longer be required.
- Concurrently, the FASB issued ASU No. 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach. This standard provides private companies that are not financial institutions with an accounting alternative which is intended to make it easier for certain interest rate swaps to qualify for hedge accounting. Under this alternative, receive-variable, pay-fixed interest rate swaps that meet specific criteria would qualify for a simplified hedge accounting model, which would make it easier to qualify for and to apply hedge accounting and also extend the time companies have to complete the necessary documentation. Furthermore, it provides a simplified measurement model based on the settlement value of the swap rather than its fair value.
- On March 20, 2014, the FASB issued ASU No. 2014-07, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements. Under this standard, private companies can elect an exemption from the variable interest entity (VIE) consolidation model applicable to certain common control leasing arrangement when a specific set of criteria are met. A private company electing to adopt the alternative would no longer be required to consolidate certain entities it had previously consolidated under the VIE model. However, the private company would still need to consider whether it should consolidate the legal entity under a voting interest model. There are additional disclosure requirements for companies electing to apply the alternative.
- These standards are effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted, which means that an eligible nonpublic entity could elect to apply one or more of the alternatives in financial statements that were not made available for issuance prior to the release of the final standard.
- The final standards provide relief to nonpublic entities by offering simplified accounting models. For example:
– Under the new goodwill alternative, the previously required annual impairment assessment is now a trigger-based impairment assessment. In addition, companies have an opportunity to make an accounting policy election to perform the impairment test at an entity-wide level as opposed to the previously required reporting unit level. Finally, any goodwill impairment loss is measured in a one-step test, so the hypothetical purchase price allocation (i.e., step 2) is no longer required.
–The new simplified hedge accounting alternative provides relief from existing hedge accounting guidance by making it easier for a company to qualify its receive-variable, pay-fixed interest rate swaps for hedge accounting, as long as certain conditions are met, and also provides a simplified measurement model.
– The new alternative for common control leasing arrangements simplifies the consolidation model for private companies by providing them with an exemption from applying VIE guidance for certain common control leasing arrangements.
What's next at the Private Company Council (PCC)
- The next PCC meeting is scheduled for December 11, 2014.
Private company reporterPrivate company reporter - PCC votes to simplify the accounting for certain intangible assets
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Private company reporterPrivate company reporter - PCC makes progress on intangible assets
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In depthIn depth: Private company variable interest entity relief
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FASB provides option to exempt certain common control leasing arrangements from the VIE model
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In the loopIn the loop: How new accounting elections could affect your deal or IPO strategy
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In the loop is an executive-level series addressing important financial reporting and regulatory issues. Our first edition discusses how changes in private company accounting could affect future deal or financing strategies.
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5/1/14 | Assurance services
The PCC continued redeliberation of an alternative for intangible assets in a business combination but made no decision.
DatalineDataline: Simplified hedge accounting approach - New private company alternative for certain interest rate swaps (No. 2014-06)
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The FASB issued a new accounting standard for private companies that is intended to simplify the hedge accounting requirements for certain interest rate swaps.
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Recently the FASB issued an Accounting Standards Update to permit private companies to amortize goodwill acquired in a business combination, and to apply a simplified goodwill impairment model. This change is intended to help reduce reporting complexity for private companies; however, private companies should carefully consider this alternative, especially for those considering an initial public offering.
VideoNew goodwill standard for private companies
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DatalineDataline: Goodwill accounting alternative - FASB and PCC issue final standard for private companies (No. 2014-05)
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11/26/13 | Assurance services
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Private company reporterPrivate company reporter - PCC approves alternative that exempts certain arrangements from VIE guidance
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The PCC approved a final standard that offers private companies an exemption from applying the VIE consolidation model to certain common control leasing arrangements.
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Private company reporterPrivate company reporter - September 30 and October 1, 2013
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At its most recent meeting, the PCC approved final standards for the accounting for goodwill and for a simplified hedge accounting model for certain interest rate swaps.
Private company reporterPrivate company reporter - August 15, 2013
8/15/13 | Assurance services
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Private company reporterPrivate company reporter - July 16, 2013
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PwC generally believes the guide identifies the appropriate matters to consider when determining whether a modification to GAAP should be available to private companies.
Private company reporterPrivate company reporter - June 13, 2013
6/13/13 | Assurance services
On June 10, the FASB endorsed each of the accounting alternatives previously approved by the PCC, related to intangible assets, goodwill and interest rate swaps. This edition of Private company reporter provides further information on the proposed alternatives, as well as highlights of other recent developments related to private company reporting.
Private company reporterPrivate company reporter (May 7, 2013 meeting)
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At its May meeting, the PCC approved alternatives in the areas of business combinations and interest rate swaps which are now subject to endorsement by the FASB.
PwC comment letter (AICPA)PwC Comments on Proposed AICPA Financial Reporting Framework for Small- and Medium-Sized Entities
1/29/13 | Assurance services
PwC fully supports efforts to enhance financial reporting for private companies, and believes that the most appropriate way to achieve meaningful change for private company stakeholders is through the collaborative efforts of the recently established Private Company Council (PCC) and the FASB. However, should the AICPA decide to issue this new non-GAAP framework, our comment letter provides observations and recommendations on changes the AIPCA should make to minimize confusion and enhance clarity. ...
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