FASB agrees to advance three private company alternatives for public comment

BY KEN TYSIAC
June 10, 2013

The march toward possible exceptions and modifications to U.S. GAAP for private companies continued Monday when FASB voted to issue three Private Company Council (PCC) initiatives for public exposure.

FASB expects to issue the exposure drafts later this month. After the exposure period, the PCC will review comments of stakeholders before redeliberating on the possible changes for private companies.

If approved, the proposals would create GAAP changes designed to:

  • Relieve private companies from separately recognizing certain intangible assets acquired in a business combination.
  • Allow private companies to amortize goodwill and use a simplified goodwill impairment model.
  • Allow two simpler approaches to accounting for certain types of interest rate swaps that are entered into by a private company for the purposes of economically converting its variable-rate borrowing to a fixed-rate borrowing.


Last year, the Financial Accounting Foundation (FAF) created the PCC in part to consider exceptions and modifications for private companies to financial reporting standards that cause unnecessary complexity and cost because they are not relevant in a private company environment. Any exceptions or modifications approved by the PCC must be endorsed by FASB before they are written into GAAP.

At a meeting on July 16, the PCC and FASB are expected to discuss PCC Issue No. 13-02, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements.

The PCC’s efforts are separate from the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), which the AICPA released on Monday. That framework, designed to help small businesses prepare streamlined, relevant financial reports, is intended for private companies that do not need GAAP financial statements.

“Everyone who has an interest in private company financial reporting—lenders, investors, and private company executives—needs to understand the significant and substantive differences between the two separate efforts now underway … to address the accounting concerns of private company stakeholders,” Robert W. Stewart, FAF vice president of communications, said in a press release.

“The FASB, working with the new Private Company Council, is seeking to identify areas in U.S. generally accepted accounting principles where appropriate alternatives could reduce costs and complexity for private companies without sacrificing the transparency, comparability, and reliability of GAAP financial statements.

“The AICPA, with its Financial Reporting Framework, is creating a non-GAAP, special-purpose framework (otherwise known as an Other Comprehensive Basis of Accounting, or OCBOA) for smaller, owner-managed, ‘Main Street’ businesses, whose lenders or investors do not require the comprehensiveness of GAAP financial statements.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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