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Journal Entry — Private Company Council Holds Second Public Meeting

Published on: Feb 13, 2013

At its second public meeting yesterday, the Private Company Council (PCC) addressed three broad topics: (1) certain aspects of the private-company decision-making framework and the definition of nonpublic entity, (2) PCC preagenda research issues, and (3) three projects on the FASB technical agenda.

Private-Company Decision-Making Framework and Definition of Private Company

The PCC and FASB discussed whether it was appropriate to retain the decision-making framework’s language that details industry-specific guidance considerations. That is, since industry-specific guidance may be presumed equally relevant to users of public- and private-company financial statements, an exception or modification should seldom be considered for private companies. While differing views were expressed, the conclusion was that this guidance should remain and be reconsidered during the final exposure review process.

In addition, meeting participants discussed whether the framework should include the “all or nothing” concept of applying exceptions or modifications. According to this concept, once a company decides to apply an exception or modification, it would need to apply all future exceptions or modifications for private companies. Although a consensus was reached that the “all or nothing” approach should not be required, the PCC recommended modifying the framework’s language to reflect that there may be instances in which certain new accounting would be linked to previous accounting; in such cases, an entity would need to consistently apply its accounting approach to any future linked standards (i.e., if it applied exceptions or modifications allowed under a standard, the entity would be required to apply any approved exceptions or modifications to future linked standards as well).

After discussing some other minor edits to the language within the framework, the PCC and FASB concluded that it would be appropriate to reexpose the decision-making framework for a 90-day comment period to solicit additional constituent feedback. The FASB indicated that it expects to issue an exposure draft of the framework in early March 2013.

Regarding the definition of a nonpublic entity, the PCC discussed the potential for developing a matrix that could be used to identify private companies. However, no formal decision was made on this issue.

Preagenda Research Issues Discussed

At its December meeting, the PCC had directed the FASB staff to develop research memoranda on four topics. During the current meeting, the PCC received an overview of the research performed by the FASB staff on these four topics, discussed whether the topics warranted additional consideration, and formally voted to add the following three topics to its agenda:

  • Accounting for intangible assets acquired in a business combination — Will focus on (1) recognizing and measuring identifiable intangible assets acquired in a business combination and (2) the use of Level 3 fair value measurements and related disclosures.
  • Accounting for variable interest entities (formerly FIN 46(R)1/FAS 1672) — Will address reporting requirements and concerns specific to related-party arrangements.
  • Accounting for “plain vanilla” interest rate swaps (single counterparty3) — Will address challenges faced by private companies in accounting for interest rate swaps with a single counterparty and related challenges associated with cash flow hedge accounting when the swap is used to convert variable interest rates on loans to fixed interest rates.

The PCC also directed the FASB staff to develop agenda research memoranda on two additional topics: (1) stock-based compensation and (2) development-stage enterprises.

FASB Projects — PCC Discussion With FASB

The PCC discussed certain of the FASB’s projects, including (1) revenue recognition and the transition for private companies, (2) going concern and use of the “more likely than not” or “substantial doubt” concept by private companies, and (3) the EITF’s project on the use of pushdown accounting and its impact on private companies. No formal decisions were made on these topics.


[1] FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities.

[2] FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R).

[3] Though the PCC discussed interest rate swaps in which multiple counterparties or lending arrangements exist, such swaps were not included as a formal agenda item; the PCC directed the FASB staff to continue researching these transactions.

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