skip to navigation
skip to content

Herbein + Company, Inc.

Person Holding the World

Herbein Blog

12 Feb
2014

Private Company Council Issues Updates

Private Company Council Issues Updates

Written by Nicholas L. Bieber and Phil A. Soto-Ortiz

The recent announcement of two new private-company accounting alternatives to U.S. GAAP demonstrates why FASB established the Private Company Council (PCC) two years ago.

Private companies have different stakeholders and, therefore, different users of their financial statements. FASB, recognizing this and responding to the demands of financial-statement users, sought to help private companies break out of the one-size-fits-all nature of GAAP. The 10-member PCC, chaired by former NASBA chairman Billy Atkinson, launched in 2012 with the purpose of identifying areas within GAAP that could be modified to serve the needs of private companies and their stakeholders better.

Two of those areas were identified and debated at length in 2013. The result was the PCC’s and FASB’s Jan. 16 announcement of new, GAAP-alternative standards for accounting for goodwill and for a simplified hedge accounting for certain receive-variable, pay-fixed interest rate swaps. The standards take effect for fiscal years beginning after Dec. 15, 2014, however, early implementation is permitted.

Under the new alternatives, private companies will have the option of amortizing goodwill on a straight-line basis over 10 years, or a shorter time if deemed appropriate, and to test goodwill for impairment only when an event that might trigger a reduction in the company’s fair value occurs. Under current U.S. GAAP, which will remain the standard for public companies and non-profits, companies are required to test for impairment at least annually. The new standard addresses the difficulty for private companies of bearing the cost of such annual testing.

The new goodwill and interest rate swap standards were proposed by the PCC, endorsed by FASB, then exposed for public comment throughout 2013. The PCC holds regular public meetings at FASB’s offices in Norwalk, Conn., and discussed these and other measures at a town hall meeting in November 2013 at Ohio State University in Columbus, Ohio. PCC’s Decision-Making Framework, published in December, states that, after public comment is heard and considered, PCC re-deliberates proposed measures and presents them to FASB for final endorsement.

More regular meetings are scheduled throughout 2014, with a second town hall meeting scheduled for May 8 at the University of Washington in Seattle, giving the public opportunity to weigh in on PCC proposals that also could become alternatives to GAAP for private companies. One proposal addressed at the Ohio State meeting is on the agenda for the PCC public meeting scheduled for Jan. 28 in Norwalk. It concerns accounting for identifiable intangible assets in a business combination, another cost for some companies.

“The cost and complexity of estimating fair value has been seemingly unnecessary and not useful,” Billy Atkinson told the Ohio State audience. The PCC proposal includes an option to subsume many intangible assets into goodwill.

More information about the PCC, including a schedule of meetings and an agenda for the Jan. 28 meeting, is available by clicking the Private Company Council (PCC) “quick link” on the FASB home page, www.fasb.org/home.

To see a bullet point breakdown of the accounting standard updates click here.

For additional information related to this topic please contact the authors Nicholas Bieber at nlbieber@herbein.com, or Phil Soto-Ortiz at pasoto@herbein.com.

| | | | | |