PCC considers unconditional first-time option for election of alternatives

By Ken Tysiac

The Private Company Council (PCC) on Tuesday asked FASB’s staff to analyze a possible elimination of the preferability requirement for private companies when electing to use the PCC’s GAAP alternatives for the first time.

Waiving the preferability requirement would allow a private company to elect at any time any of the four PCC-originated alternatives, as long as it’s a first-time election.

The preferability requirement is found in Topic 250, Accounting Changes and Error Corrections, of the FASB Accounting Standards Codification. It permits the use of an allowable alternative accounting principle on the basis that it is preferable.

Proponents of a first-time, unconditional option for the PCC alternatives have expressed concern that private companies sometimes experience changes in circumstances that would have led them to adopt a PCC alternative if the changes had occurred before the effective date.

FASB’s staff recommended in a staff paper that the PCC provide companies with an unconditional option to make a first-time election of a private company alternative. In the discussion, PCC and FASB members also discussed the possibility of developing guidance that would exempt private companies from preferability requirements altogether.

According to the FASB staff paper, opponents of an unconditional option say the preferability assessment under Topic 250 is not insurmountable or punitive. Opponents say a private company should have a reasonable basis for electing a different accounting alternative.

The PCC agreed to ask FASB’s staff for more analysis of the issue. The four PCC-originated alternatives are:

  • Accounting Standards Update (ASU) No. 2014-02, Intangibles—Goodwill and Other (Topic 350), which permits a private company to subsequently amortize goodwill on a straight-line basis over 10 years, or less if another useful life is more appropriate. It also permits a private company to apply a simplified impairment model to goodwill.
  • ASU No. 2014-03, Derivatives and Hedging (Topic 815), which gives private companies other than financial institutions the option to use a simplified hedge accounting approach to account for interest rate swaps that are entered into to convert variable-rate interest payments to fixed-rate payments.
  • ASU No. 2014-07, Consolidation (Topic 810), which permits private companies—when certain conditions exist—to elect not to apply variable-interest entity guidance to a lessor under common control.
  • ASU No. 2014-18, Business Combinations (Topic 805), which permits a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination.

Other PCC action

The PCC also continued its evaluation of share-based payments guidance and will resume the discussion in a future meeting, taking into consideration feedback received in connection with FASB’s upcoming exposure draft on employee-based payment accounting improvements.

During a discussion on FASB’s project on simplifying the balance sheet classification of debt, PCC members continued to express concerns.

“I truly hope that the individual board members will take this to heart and listen very carefully to these real-world, real-experience, real-life items that are happening out there,” PCC member Larry Weinstock said.

In addition, the PCC discussed FASB’s projects on disclosures by business entities about government assistance, and the disclosure framework.

The PCC also asked FASB to consider conducting research on clarifying the application of certain aspects of variable-interest entity guidance that are not already addressed by ASU No. 2014-07.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

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