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.

Latest developments

At its May 7, 2013 meeting, the Private Company Council (PCC) proposed to the FASB accounting alternatives for certain transactions involving business combinations and interest rate swaps. The proposed alternatives would permit a private company (i.e., a nonpublic entity) to apply simplified accounting treatments that would reduce cost and complexity in accounting for and reporting those transactions.

The FASB staff will now draft Accounting Standards Updates (ASUs) to capture the alternatives and facilitate their consideration by the FASB. If endorsed by the FASB, the draft ASUs will be exposed for public comment for at least 60 days.

In the area of identifying and recognizing intangible assets in a business combination and subsequent accounting for goodwill, the following optional approaches were proposed to improve current guidance:

  • The recognition of intangible assets would be subject to new criteria that would potentially reduce the number of intangible assets recognized from that under the current standard.
  • Goodwill will no longer be subject to the annual two-step impairment test,. Instead, it would be amortizedand subject to a trigger-based, simplified impairment test.

When a nonpublic entity intends to economically convert variable-rate debt to fixed-rate debt through an interest rate swap arrangement, two alternatives have been approved by the PCC:

  • Interest rate swaps that meet certain specific criteria would no longer be required to be accounted for under the current interest rate cash flow hedge accounting model. Qualifying instruments may follow a proposed “combined instruments” model that eliminates the need for any derivative accounting.
  • If only certain specified criteria are met, a “simplified shortcut method” could be used, which would make it easier to apply hedge accounting and avoid income statement volatility.

The FASB staff continues to explore the meaning of “traded in a public market” in its definition of a non-public entity project." In applying the framework, the Board and the PCC will look to this definition as they consider the entities for which a modification to GAAP may be appropriate.

Meanwhile, public reaction to the AICPA's special purpose financial reporting framework for small and medium-sized entities was mixed. Although some comment letter respondents enthusiastically supported the framework, a number of others raised significant concerns across a variety of topics.

What's next

At its next meeting on July 16, the PCC is expected to discuss its project on the application of variable interest entity guidance to common control leasing arrangements. They are also planning to discuss the reporting for development stage enterprises, which may include the possibility of eliminating the required presentation of the cumulative statements of operations t cash flows and equity.

The AICPA had previously indicated its intention to issue the final special purpose framework and a companion volume with implementation guidance in the second quarter of 2013. It remains to be seen if the content of the framework and the timing of its issuance will be affected by the public comments the AICPA has received.

 

In brief

FASB and Private Company Council propose private company decision-making framework (No. 2013-21)

4/17/13 | Assurance services

In brief

Private Company Council holds its second meeting (No. 2013-07)

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