Proposed Changes to U.S. GAAP Could Reduce Burden on Private Companies

The Private Company Council (PCC) was established last year by the Financial Accounting Foundation (FAF) to work with the Financial Accounting Standards Board (FASB) to evaluate and provide guidance where alternative accounting and reporting would be appropriate for private companies under U.S. Generally Accepted Accounting Principles (GAAP).

The FASB has established the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies, which will be used to evaluate if and when a departure for private companies would be beneficial. The board has issued an invitation to comment on the Private Company Decision-Making Framework, and the public comment period will close on June 21, 2013.

The PCC will work within this framework to identify circumstances where alternative recognition, measurement, disclosure, transition guidance and effective dates of standards are appropriate in order to improve financial reporting for private companies and to reduce the burden created by some of the complex U.S. GAAP requirements. The objective of these alternatives is to allow considerations pertaining to user-relevance and cost-benefit within the existing conceptual framework for private companies. It is not intended to be an entirely new conceptual framework.

The PCC has identified the following three topics as their initial projects:

• Accounting for identifiable intangible assets in a business combination and subsequent accounting for goodwill, as referenced in Accounting Standards Codification (ASC) Topic 350, Intangibles – Goodwill and Other (formerly FAS 141(R) and FAS 142).
• Applying variable interest entity guidance, specifically when applied to related party arrangements, as referenced in ASC Topic 810, Consolidation (formerly FIN 46(R) and FAS 167).
• Accounting for “plain vanilla” interest rate swaps with single counterparties, as referenced in ASC Topic 815, Derivatives and Hedging (formerly FAS 133).

The PCC is also working with the FASB staff to research two additional topics for further consideration: stock based compensation and development stage enterprises.

“The robust discussion and collaboration between the PCC and FASB made this first step toward improvement possible,” stated Billy M. Atkinson, PCC chairman.

It is important to note that these proposed changes will not take effect immediately. The PCC will have a public comment period, where they will then review the comments and proposed changes prior to giving them to the FASB for a final endorsement. If the FASB gives a final endorsement, then the proposed changes will be incorporated into U.S. GAAP.

Should you have any questions regarding these possible changes in reporting for private companies and their potential impact, please contact me at tsolomon@bpw.com or (805) 963-7811.