PCC Moves on Private Company Reporting Standards

by Allison M. Henry, CPA | May 22, 2018
Pennsylvania CPA Journal

The “Big GAAP vs. Little GAAP” debate is decades old, but it reached a much higher pitch following the recent issuance of standards on variable interest entities, fair value, goodwill, and uncertain tax positions. Because of a perceived lack of relevance to users of private company financial statements, as well as a level of complexity in which costs outweigh the benefits of compliance, movement is growing toward the issuance of financial statements with GAAP departures or financial statements prepared using a special purpose framework.

A related initiative is the issuance of the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) by the AICPA. This is an alternative to U.S. GAAP for private entities and would be a special purpose framework according to SAS 127, Omnibus Statement on Auditing Standards – 2013

The Private Company Council (PCC) has moved quickly these past few months in its attempt to respond to the concerns of users, preparers, and outside auditors and accountants associated with private company financial statements.

The PCC 

In December 2009, the Blue-Ribbon Panel on Standard Setting for Private Companies (BRP) was established by the AICPA, Financial Accounting Foundation (FAF), and National Association of State Boards of Accountancy. Its purpose was to provide recommendations to the FAF board of trustees on future standards setting for private companies. 

In May 2012, the FAF endorsed the idea of a differential framework for private entities and approved the establishment of the PCC. The primary responsibilities of the PCC are as follows:
  • Propose exceptions and modifications for private entities to existing U.S. GAAP
  • Serve as an advisory body on FASB agenda issues

The 10 members of the PCC, who represent user, preparer, and practitioner constituencies, were appointed by the FAF for an initial three-year term. As structured, when the PCC makes a recommendation to the FASB, the FASB is expected to respond within a reasonable period of time. If FASB endorses the modification, the next steps are as follows:

  • Public comment period for due process
  • PCC redeliberation and vote (supermajority needed)
  • FASB vote on final endorsement (simple majority needed)
If the FASB votes to endorse the modification, it will issue an Accounting Standards Update (ASU). If the FASB does not endorse a PCC modification, it is required to provide the PCC chair with written notice outlining the rationale and potential changes that the PCC could consider to achieve FASB’s endorsement.

Activity to Date

The PCC has met three times (December 2012, February 2013, and May 2013). At its first meeting in December 2012, it identified four potential agenda items. 
  • Variable interest entities
  • Accounting for “plain vanilla” interest rate swaps
  • Recognizing and measuring intangible assets (other than goodwill) acquired in business combinations
  • Uncertain tax positions

In February 2013, the PCC decided not to pursue modifications for uncertain tax positions at this time. In the PCC’s view, there are no specific practice issues that require immediate attention – in particular, none that differ between public and private companies. PCC members will still seek feedback from stakeholders and might reconsider this as an agenda item in the future.

Additionally, the PCC requested that FASB staff develop research memoranda for two potential agenda projects:

  • Stock-based compensation (especially when company value decreases)
  • Development stage entities (especially for disclosures of cumulative amounts since inception)

At its May 2013 meeting, the PCC approved exposure of proposed modifications in the following areas:

  • Accounting for “plain vanilla” interest rate swaps
  • Recognizing and measuring intangible assets (other than goodwill) acquired in business combinations 
  • Subsequently measuring goodwill
The PCC asked FASB staff to continue research on interest rate swaps with more than one counterparty or lending arrangement.

On June 10, 2013, the FASB voted to endorse the PCC’s proposed modifications and to issue the related exposure documents for public comment. 

Conclusion

If the recommendations of the PCC are approved by the FASB, the modifications to U.S. GAAP for private companies would provide some relief for the complexities within U.S. GAAP. Many practitioners hope these initiatives will provide more useful and practical guidance for the preparation of private company financial statements.

Allison M. Henry, CPA, is vice president of professional and technical standards for the PICPA. She can be reached at ahenry@picpa.org.


Read It Your Way

digital edition

Read the latest edition of the Pennsylvania CPA Journal via the web or digital edition. 

Read Now
Member Benefit

The Pennsylvania CPA Journal is a PICPA member benefit. Receive quarterly editions of the Journal delivered to your doorstep.

Join

Premier Sponsors

Platinum Sponsors

Gallagher Bollinger Logo
CPACharge


Silver Sponsors

Paychex logo
Capstan Logo
epsa USA


Bronze Sponsors

sage-logo_bright_green_rgb_2018_28469
TaxConnex_logo_TM_tagline2019
botkeeper1
Fox School of Business, Temple University


Interested in becoming a sponsor? View packages >


CPA Now