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Private Company Decision-Making Framework update

Posted on 04-30-2014
Private Company Decision-Making Framework update

By Chris Hatten, CPA

While the discussion from the SEC around the adoption of International Financial Reporting Standards (IFRS) has gone all but quiet, the Financial Accounting Standards Board (FASB) is keeping active with its work around the Private Company Decision-Making Framework.

Recently, greater clarity was obtained when the FASB issued Accounting Standards Update (ASU) No. 2013-12 that defined the term “public business entity” for use in its standard setting process and detailed which entities could fall within the scope of the Private Company Decision-Making Framework and qualify for the alternative accounting and reporting guidance.

Per the ASU, the term “public business entity” is defined as a business entity meeting any of the following criteria:

  • It is required by the U.S. SEC to file or furnish financial statements, or does file or furnish financial statements with the SEC, including other entities whose financial statements or financial information are required to be or are included in a filing.
  • It is required by the Securities Exchange Act of 1934, or rules or regulations thereunder, to file or furnish financial statements with a regulatory agency other than the SEC.
  • It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of securities or for purposes of issuing securities that are not subject to contractual restrictions on their transfer.
  • It has, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or on an over-the-counter market.
  • It has one or more securities not subject to transfer restrictions, and it is required by law, regulation, or contract to provide U.S. GAAP financial statements, including footnotes thereto, to be made publicly available on a periodic basis (e.g., on an interim or annual basis), pursuant to a legal or regulatory requirement.

The first two GAAP alternatives were released by the FASB in January. Those alternatives:

  • Exempted private companies from the requirement to annually perform impairment testing for goodwill subsequent to a business combination, and
  • Created a simplified hedge accounting approach for certain interest-rate swaps that private companies, other than financial institutions, enter to convert variable-rate debt to fixed-rate debt.

The next alternative that will probably be met with the most anticipation – and was released by the FASB during March – will exempt private company lessees from a requirement to consolidate variable-interest entities in common-control leasing arrangements.

Chris Hatten, CPA, is a director of Audit for PKF Texas. He also serves on the firm’s IFRS Team. Contact him at (713) 860-1400 or chatten@pkftexas.com.