10 June 2013

FASB endorses private company council proposals dealing with GAAP for private companies

The FASB voted to endorse three alternatives within US GAAP proposed by the Private Company Council (PCC) to address concerns raised about the relevance and complexity of certain aspects of GAAP for private company stakeholders.

The proposals involve accounting for intangible assets acquired in business combinations, goodwill, and certain types of interest rate swaps.

The first proposal—derived from PCC Issue No 13-01A, 'Accounting for Identifiable Intangible Assets in a Business Combination'—would not require private companies to separately recognise certain intangible assets acquired in a business combination. The proposal enables private companies that elect the alternative within US GAAP to recognise only those intangible assets arising from non-cancellable contractual terms or those arising from other legal rights. Otherwise, an intangible asset would not be recognised separately from goodwill even if it is separable.

The second proposal—derived from PCC Issue No 13-01B, 'Accounting for Goodwill Subsequent to a Business Combination'—would allow for amortisation of goodwill and a simplified goodwill impairment model. This would enable private companies that elect the alternative within US GAAP to amortise goodwill over the useful life of the primary asset acquired in a business combination, not to exceed 10 years. Goodwill would be tested for impairment only when a triggering event occurs that would more likely than not reduce the fair value of a company below its carrying amount. Moreover, goodwill would be tested for impairment at the company-wide level as compared to the current requirement to test at the reporting unit level.

The third proposal—derived from PCC Issue No 13-03, 'Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps'—would allow private companies the option to use two simpler approaches to accounting for certain types of interest rate swaps that are entered into by a private company for the purposes of economically converting its variable-rate borrowing to a fixed-rate borrowing. Under both approaches, the periodic income statement charge for interest would be similar to the amount that would result if the private company were to have entered into fixed-rate borrowing instead of variable-rate borrowing. The two approaches would apply to all private companies, except for financial institutions.

For the first two proposals, the FASB directed the staff to conduct additional research during the comment period to assess the applicability of these proposals to public companies and not-for-profit organisations. For PCC Issue No 13-03, the Board directed the staff to conduct outreach through its normal channels, including advisory groups and other meetings in which the FASB participates.

Press release

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