Private Company Council has VIEs on radar

FIN 48 also among topics for agenda consideration.

Variable-interest entities (VIEs), which have long been identified as one of the most frustrating concepts in accounting for private companies, were among the four issues the new Private Company Council (PCC) identified for further study and possible agenda consideration during its initial meeting Dec. 6 in Norwalk, Conn.

The PCC was created by FASB’s parent organization, the Financial Accounting Foundation (FAF), in part to identify and vote on potential modifications and exceptions to U.S. GAAP for private companies. In addition, the PCC advises FASB on private company considerations for projects on FASB’s current agenda.

Chaired by Billy Atkinson, the PCC asked FASB’s staff to draft papers for discussion on four issues that have caused substantial concern among private companies and their financial statement preparers. The staff papers will describe problems stakeholders have identified with the standards, including background information and history. Possible scoping options for each issue also will be included to inform the PCC on how it could proceed if it adds the items to its agenda.

FASB’s staff will prepare discussion papers for the PCC’s next meeting, scheduled for Feb. 12, on the following issues:

VIEs. The requirements of FIN 46(R), codified in ASC Topic 810, Consolidation, were created in the wake of Enron’s collapse in order to prevent the hiding of liabilities on the balance sheets of dummy corporations. FIN 46(R) requires consolidation of the financial data of a VIE with the company that is the VIE’s primary beneficiary. This forces consolidation, for instance, when an owner of a small business buys property through his or her LLC and leases it back to the company. This is costly and does not necessarily create financial statements that are more helpful to users such as lenders.

Fair value accounting. The discussion will apply to “plain vanilla” interest-rate swaps, where FASB Statement No. 133, codified in ASC Topic 815, Derivatives and Hedging, requires costly mark-to-market accounting.

Recognizing and measuring various intangible assets (other than goodwill) acquired in business combinations. This discussion will include Level 3 fair value measurements and disclosures associated with them, as referenced in ASC Topic 805, Business Combinations. The PCC also plans to discuss goodwill accounting in general at a later date.

Uncertain tax positions. FIN 48, mostly incorporated into ASC Topic 740, Income Taxes, requires companies to record a tax liability on their balance sheets, showing how much they have in reserve in case the IRS or state tax authorities disagree with their tax positions. The calculation is time-consuming and expensive, and is thought by some to be an appropriate requirement for large public companies that are audited regularly, but less appropriate for private companies.

FASB staff member Jeff Mechanick said those initial discussions would cover all but one of the issues identified most commonly as needing review in outreach performed by the Blue-Ribbon Panel on Standard Setting for Private Companies. The remaining issue is accounting for pensions and post-employment benefits, which Mechanick said might be addressed for all companies—private and public—in FASB’s disclosure framework project.

“I’m confident that we’re on the right track,” Atkinson said.

The PCC also discussed aspects of FASB’s Private Company Decision-Making Framework and Definition of a Nonpublic Entity projects. In addition, the body that formerly advised FASB on private company issues, the Private Company Financial Reporting Committee (PCFRC), formally passed the torch to the PCC. Two PCFRC members—Thomas Groskopf and George Beckwith—remain on the PCC, whose mandate as a board that can identify and vote on GAAP exceptions exceeds the advisory capacities of the PCFRC.

GAAP modifications for private companies that are approved by a two-thirds supermajority of the PCC must be endorsed by a simple majority of FASB members to move forward through the standard-setting process.

Ken Tysiac is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at or 919-402-2112.


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