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Journal entry — PCC redeliberates three proposed ASUs

Published on: Oct 02, 2013

At its meetings with the FASB this week, the Private Company Council (PCC) redeliberated the following three proposed Accounting Standards Updates (ASUs), which were recently exposed for comment:

  • Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps (PCC Issue No. 13-03) — This proposal provides two alternative methods of accounting for certain interest rate swaps: the simplified hedge accounting approach and the combined instruments approach. The PCC voted to approve the simplified hedge accounting approach with minor scope adjustments and clarifications, and it agreed on certain transition and implementation guidance. The PCC also considered significantly narrowing the scope of the combined instruments approach (i.e., the swap counterparty must be the debt issuer or an affiliate) but decided to eliminate this method from the current proposal and consider it separately after the FASB staff performs additional research. The PCC reaffirmed the proposal’s effective date (i.e., 2015 for calendar year companies; early adoption permitted) and transition requirements (i.e., modified retrospective or full retrospective).
  • Accounting for Goodwill Subsequent to a Business Combination (PCC Issue No. 13-01B) — This proposal outlines an alternative method of accounting for goodwill that would (1) permit an entity to amortize goodwill, (2) require a test for impairment only upon the occurrence of a triggering event, and (3) simplify the way the impairment test is performed. The PCC voted to retain the amortization requirements such that goodwill would be amortized over a period of 10 years but specified that a shorter period could be used if such period was appropriate under the circumstances. In addition, the PCC voted to revise the level at which goodwill is tested such that entities would have the option to test goodwill at either the entity level or the reporting unit level. The PCC also approved providing guidance on allocating impairment losses and reducing goodwill in disposal scenarios as well as other transition guidance. The PCC reaffirmed the proposal’s effective date (i.e., 2015 for calendar year companies; early adoption permitted) and transition (i.e., prospectively applied to existing and future goodwill balances).
  • Accounting for Identifiable Intangible Assets in a Business Combination (PCC Issue No. 13-01A) — This proposal would permit an entity to recognize fewer intangibles in a business combination (i.e., only intangibles arising from contractual terms or other legal rights would be recognized) and would simplify the measurement of some intangibles that continue to be recognized (i.e., measurement would be based only on the remaining contractual term). The PCC received input from constituents that this proposal would not result in substantial reductions in cost or complexity for financial statement preparers. Further, the PCC discussed whether recognizing any intangible assets separately from goodwill gives users of private-company financial statements decision-useful information. As a result, the PCC directed the FASB staff to research alternatives that would subsume most, if not all, intangible assets into goodwill and to consider what enhanced disclosures would be warranted in such case.

The PCC voted to finalize the interest rate swap and goodwill proposals and indicated its intent to facilitate a timely release of final standards so that entities could potentially consider early adoption in the current calendar year. If endorsed by the FASB, the proposed guidance will be issued as final ASUs. In the coming weeks, the FASB intends to consider the applicability of these proposals to not-for-profit and public entities. In addition, the FASB will need to finalize the definition of a public business entity so that entities can determine whether they are eligible to adopt these accounting alternatives.

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