In brief: FASB issues exposure drafts for alternatives proposed by the Private Company Council (No. 2013-35)

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In brief 07/02/2013 by Assurance services
In brief: FASB issues exposure drafts for alternatives proposed by the Private Company Council (No. 2013-35)

At a glance

On July 1, the FASB issued three exposure drafts on the first accounting alternatives proposed by the Private Company Council.

What's new?

On July 1, 2013, the FASB issued three exposure drafts on the first accounting alternatives (the "proposals") proposed by the Private Company Council (PCC)1. The proposals will permit a private company to apply simplified accounting treatments that will reduce cost and complexity in accounting and reporting.

What are the key provisions?

The following is a summary of the proposals:

Accounting for Identifiable Intangible Assets in a Business Combination

An intangible asset will only be recognized if it arises from either a contractual right with noncancelable contract terms, or a legal right. In measuring the value of an intangible asset arising from a contractual right, only the fair value associated with the contract’s remaining noncancelable term will be considered. The number of intangible assets recognized under this standard is expected to be less than under the current standard.

Accounting for Goodwill

Goodwill will be amortized on a straight-line basis over its estimated useful life, not to exceed ten years. It will be subject to impairment testing only upon the occurrence of a triggering event that indicates that the fair value of an entity may be below its carrying amount.

The goodwill impairment test will be conducted at an entity-wide level rather than at a reporting unit level. In measuring the amount of any indicated impairment, the amount of the impairment will be determined by calculating the difference between the fair value and the carrying value of the entity. No hypothetical purchase price allocation (i.e., "step two") will need to be performed to isolate only the impact to goodwill.

Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps

When an entity that is not a financial institution economically converts variable-rate debt to fixed-rate debt through an interest rate swap arrangement, it will have two accounting alternatives:

  • Combined instruments approach - If an interest rate swap meets specific criteria designed to assess how closely the terms of the swap align with the terms of the underlying debt, a “combined instruments approach” can be used, whereby the swap will be combined with the underlying debt instrument, effectively converting the debt instrument to a fixed rate borrowing. The swap will not be subject to derivative accounting nor will the company be required to consider the swap's effectiveness as a cash flow hedge.
  • Simplified hedge accounting approach - If other, less-restrictive criteria are met, a “simplified hedge accounting approach” can be used, which will make it easier to apply hedge accounting and avoid income statement volatility.

Who's affected?

The proposals will apply to all entities, except publicly traded entities, not-for-profit entities, and certain employee benefit plans. In addition, financial institutions may not apply the derivatives proposal. However, the FASB has undertaken a separate project to revisit the definition of a nonpublic entity. An exposure draft on that project is expected soon. Changes to the definition of a nonpublic entity may change who is affected by the proposals.

The FASB has indicated that it will consider each of the proposals for broader application beyond just nonpublic entities. Public company stakeholders are encouraged to proactively comment on the proposals as well.

What's the proposed effective date?

No effective date has been proposed. The Board will determine the effective date after it has considered the public feedback on the proposals.

What's next?

Comments on the proposals are due by August 23, 2013. The PCC intends to redeliberate the three alternatives at its October 1, 2013 meeting. Final standards would be subject to endorsement by the FASB.


PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact Kirsten Schofield (1-973-236-4054), Lawrence Dodyk (1-973-236-7213) or John Stieg (1-973-236-7057) in the National Professional Services Group.

1See the Private company reporter (May 7, 2013 meeting) for more information on each of the three alternatives approved by the PCC and subsequently endorsed by the FASB.

Authored by: 

Kirsten Schofield
Phone: 1-973-236-4054

Lawrence Dodyk
Phone: 1-973-236-7213

John Stieg
Senior Manager
Phone: 1-973-236-7057