NORWALK, Conn.--(BUSINESS WIRE)--The Private Company Council (PCC) today voted to expose a proposed alternative within U.S. Generally Accepted Accounting Principles (GAAP) for applying consolidation guidance for leasing entities under common control. The PCC and the Financial Accounting Standards Board (FASB) also voted to finalize the Private Company Decision-Making Framework.
The proposed GAAP alternative, PCC Issue No. 13-02, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (formerly FIN 46(R) and FAS 167), would exempt private companies from applying the consolidation guidance for variable interest entities under common control leasing arrangements. A variable interest entity is an organization in which consolidation is not based on a majority of voting rights. The disclosures to be provided under the alternative would better align the information that lenders and other users of private company financial statements typically use in assessing the cash flows of a reporting entity.
The PCC’s decision to move forward with the proposal is the first step in a process toward exposure by the FASB. The FASB staff will draft a detailed proposal, which the Board will discuss in the coming weeks. If the Board decides to endorse the proposal, it will be issued for public comment as a proposed Accounting Standards Update.
“In advancing the PCC’s fourth accounting standards proposal, the PCC is making significant progress in tackling issues top of mind for users, preparers, and auditors of private company financial statements,” said PCC Chairman Billy M. Atkinson.
In addition to the action on variable interest entities, the PCC and the FASB also voted to finalize the Private Company Decision-Making Framework (the Guide), which outlines criteria to determine whether and in what circumstances it is appropriate to adjust financial reporting requirements for private companies following U.S. GAAP. The Guide is intended to aid the PCC and the FASB in identifying opportunities to enhance the relevance to users and reduce the cost and complexity of preparing private company financial statements in accordance with U.S. GAAP. The Guide is expected to be issued by the end of the summer.
At the PCC’s recommendation, the FASB also voted to add a narrow scope project to its agenda to address the concerns of public and private company stakeholders on development stage companies. Accounting Standards Codification Topic 915, Development Stage Entities (formerly FAS 7), requires a development stage company to conduct its accounting and prepare its financial statements using the same accounting principles as an established operating company. It also requires a company to report additional cumulative information for each income statement item and in the statement of cash flows from the company’s inception. In addition, a company must report the history of all transactions from inception, including noncash considerations.
“The PCC and the FASB identified issues concerning development stage companies that were found to affect both private and public companies—therefore we agreed that the project should be added to the FASB agenda,” said FASB member and PCC liaison Daryl E. Buck. “The FASB will be seeking input on the issue from investors and preparers from public and private companies alike.”
The PCC also announced a public roundtable and town hall meeting on Monday, November 4, 2013, at Ohio State University in Columbus, Ohio to seek input from private company stakeholders on issues affecting them, the PCC’s projects to date, and FASB’s projects impacting private companies.
For more information, visit the PCC website.
About the Private Company Council (PCC)
The PCC determines alternatives to existing nongovernmental U.S. GAAP to address the needs of users of private company financial statements, based on criteria mutually agreed upon by the PCC and the FASB. Before being incorporated into U.S. GAAP, PCC recommendations will be subject to a FASB endorsement process. The PCC also serves as the primary advisory body to the FASB on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.