Financial reporting

October 1, 2012

  FASB released its initial staff recommendations on whether and when it will be appropriate to adjust financial reporting requirements for private companies.

The recommendations are contained in a paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies. FASB invited stakeholders to comment on the recommendations.

In May, the Financial Accounting Foundation (FAF), FASB’s parent organization, created the Private Company Council (PCC). The council will identify, deliberate, and vote on proposed changes, which will be subject to endorsement by FASB.

FASB and the PCC must agree jointly on the proposed decision-making framework before it is implemented. The framework will guide the PCC as it determines whether modifications or exceptions to existing U.S. GAAP are needed for private companies.

The staff paper says that in identifying guidance for possible GAAP exceptions, FASB and the PCC should first determine whether the guidance provides relevant information to private company financial statement users at a reasonable cost.

The paper gives substantial guidance to help define the cost/benefit analysis and provides a flowchart illustrating the framework to decide whether to permit exceptions or modifications in disclosures for private companies.

In addition, the staff paper recommends that:

  • In some circumstances, FASB and the PCC may conclude that private companies should be provided exceptions from applying the same display requirements as public companies, or should apply a modified display requirement.
  • Generally, the amendments in an Accounting Standards Update (ASU) should be effective for private companies one year after the first annual period for which public companies must adopt them. Exceptions could be made to this principle, though.
  • If public companies are required to apply the full method or limited method of retrospective transition when an ASU is issued, FASB and the PCC should consider whether the same method of retrospective transition is appropriate for private companies.


The discussion paper is available at tinyurl.com/br9qr67. The comment period ends Oct. 31.


  The guidance for testing the impairment of intangible assets such as indefinite-lived trademarks, licenses, and distribution rights has been simplified.

FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.

The standard applies to testing the decline in realizable value of indefinite-lived intangibles other than goodwill, and applies to all public, private, and not-for-profit organizations.

The ASU allows an organization the option of first assessing qualitative factors to determine if a quantitative impairment test of the indefinite-lived intangible asset is necessary. If the qualitative assessment reveals that it’s “more likely than not” that the asset is impaired, a calculation of the asset’s fair value is required.

Otherwise, no quantitative calculation is necessary.

“The board expects that the revised guidance will reduce the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low,” FASB Chairman Leslie Seidman said in a statement.

FASB’s previous guidance required an organization to compare the fair value of an indefinite-lived intangible asset with its carrying amount at least annually to test for impairment. If the asset’s carrying amount exceeded its fair value, the difference was recognized as an impairment loss.

The ASU is available at tinyurl.com/cq4op2k. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after Sept. 15, 2012. Early adoption is permitted.


  FAF is gathering survey participants for a post-implementation review of a FASB standard on business combinations.

A joint project with the International Accounting Standards Board (IASB) resulted in FASB Statements No. 141(R), Business Combinations, and No. 160, Noncontrolling Interests in Consolidated Financial Statements, which were issued in December 2007.

A month later, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements.

FAF is seeking stakeholders who want to be considered to participate in a post-implementation review survey of Statement No. 141(R). IFRS 3 also is scheduled to be reviewed by the IASB. Stakeholders can register at tinyurl.com/c467dkj to be considered for participation in the FAF post-implementation review.


  The Federal Accounting Standards Advisory Board (FASAB) has adopted a new mission statement that notes its service to the public interest.

“The FASAB serves the public interest by improving federal financial reporting through issuing federal financial accounting standards and providing guidance after considering the needs of external and internal users of federal financial information,” a FASAB statement says.

FASAB Chairman Tom Allen said in a news release that the previous mission statement did not adequately emphasize the board’s commitment to serving the public interest, which is the primary driver of its work. A full explanation of the FASAB’s mission and objectives is available at tinyurl.com/7lv3gtm.


  The AICPA Health Care Expert Panel developed nonauthoritative guidance on how health care entities should account for costs incurred in connection with the implementation of the 10th edition of the International Classification of Diseases (ICD-10).

By Oct. 1, 2013, the U.S. health care system is scheduled for a transition to ICD-10 from the ninth edition (ICD-9) code sets used to report medical diagnoses and inpatient procedures.

Technical Question and Answer (TPA) 6400.48, provides nonauthoritative guidance that includes factors to consider in assessing whether modifications to an entity’s existing software system qualify as an upgrade or enhancement.

The TPA is available at tinyurl.com/3so64k8.

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