Private companies expect relief from big business accounting rules
Last year, the Financial Accounting Foundation (FAF), the organization that oversees the setting of accounting standards for businesses, not-for-profit organizations, and state and local governments, established a new body to improve the process of setting accounting standards for private companies. Private companies, and particularly small and mid-size businesses, had long sought relief from a number of accounting rules which they viewed to be unnecessarily complex, burdensome, and not particularly meaningful to the users of their financial statements. In response, the FAF board of directors, after deliberation and considering public comment, formed the Private Company Council (PCC.) Now, the PCC has begun its work and issued its first set of proposals.
The PCC, through its own agenda-setting, deliberation and public comment process, is charged with proposing exceptions or modifications to U.S. Generally Accepted Accounting Principles (GAAP), where such modifications are deemed advisable for private company financial reporting. PCC proposals must be endorsed by a majority vote of the Financial Accounting Standards Board (FASB), the FAF body charged with establishing standards of financial accounting and reporting for businesses, in order to become part of GAAP.
On July 1, the FASB endorsed and issued for public comment, the PCC’s first three proposals. They are:
- Accounting for Identifiable Intangible Assets in a Business Combination – designed to reduce the accounting burdens associated with mergers and acquisitions for private companies.
- Accounting for Goodwill Subsequent to a Business Combination – expected to simplify the accounting for goodwill arising from mergers and acquisitions for private companies.
- Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps – intended to ease private companies’ accounting requirements with respect to interest rate swaps, which are commonly used by businesses to effectively convert variable rate borrowings to fixed rate.
FASB and PCC are currently seeking public comment on the proposals, and consideration of that feedback is slated for the September 30 and October 1 PCC meetings.
We expect these exceptions to become effective in the near future, and we expect the PCC to be relatively active in seeking additional exceptions for privately held companies. For clients of Fox, Byrd & Company, we expect simpler private company accounting rules to benefit our clients, as well as the users of their financial statements, such as their banks, creditors and investors.
More detailed information about the activities of the PCC is available at the FASB’s website at www.fasb.org.
By Mitch Perry
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