On April 15, 2013, the Financial Accounting Standards Board (Board) and Private Company Council (Council) jointly issued an invitation to comment on a proposed private company decision-making framework (the "framework"). The framework contains guidance for the Board and Council to determine whether and in what circumstances to modify US GAAP for private companies. Refer to the Board’s website for more information, including a FASB In Focus.
In July 2012, the Board issued a discussion paper containing an initial draft of the framework.1 The Board and the Council deliberated the draft framework and feedback received on the discussion paper during the December and February Council meetings.
The framework identifies six differentiating factors between public and private companies for financial reporting purposes: (1) types and number of financial statement users; (2) access to management; (3) investment strategies; (4) ownership and capital structures; (5) accounting resources; and (6) learning about new financial reporting guidance. The framework also discusses the implications of these differentiating factors on the financial reporting of private companies.
Additionally, the framework identifies five areas where financial accounting and reporting guidance might differ between public and private companies: (1) recognition and measurement; (2) disclosures; (3) display (presentation); (4) effective date; and (5) transition method.
Following joint deliberations at the February Council meeting, several amendments to the framework were made, including:
The framework, when finalized, will be used by the Board and the Council to identify the unique needs of the users of private company financial statements. It will help them identify appropriate opportunities to reduce the cost and complexity of preparing private company financial statements, and improve the relevance of those statements for users.
Any changes to US GAAP for private companies proposed by the Council will be subject to public comment and endorsement by the Board. It is anticipated that modifications endorsed by the Board will be codified under US GAAP as an alternative available for private companies.
The definition of a nonpublic entity, the subject of a current Board project, will provide the initial screen for determining which entities are within the scope of the decision-making framework. However, a company within the scope of the framework may not necessarily be eligible to apply all modifications provided for private companies.
Additionally, certain of the Council’s proposals that reduce complexity and cost and increase relevancy could ultimately be determined to be relevant for both private and public companies. These proposals could be considered by the Board for broader application.
Input on the exposure draft is requested by June 21, 2013. After the comment period has ended, the Board and the Council will jointly deliberate the feedback received and finalize the framework.
The Council will meet again on May 7, 2013. The framework will not have to be finalized prior to the Council discussing and voting on matters on its technical agenda, or the Board deliberating the endorsement of a proposed modification.
Pw clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).
1Refer to In brief 2012-31, FASB issues Invitation to Comment on Private Company Decision-Making Framework, for more information about the original discussion paper.