At its meeting today, the FASB voted to endorse for final issuance two alternatives to U.S. GAAP for private companies put forth by the Private Company Council (PCC). The first alternative will allow private companies to elect to amortize goodwill recognized from a business combination over 10 years (or, alternatively, a period less than 10 years if more appropriate). It will also simplify the goodwill impairment process by allowing private companies to test goodwill (1) only when impairment indicators are present (rather than at least annually) and (2) at an entity-wide level (rather than at the reporting-unit level).

The second alternative will allow private companies that are not financial institutions¹ to apply, in certain circumstances, a simplified hedge accounting method to hedging relationships involving variable-rate debt and a pay-fixed, receive-floating interest rate swap. The simplified approach assumes no hedge ineffectiveness in the hedging relationship, thereby resulting in an income statement impact similar to what would have occurred had the private company simply entered into a fixed-rate borrowing. In addition, the simplified approach allows private companies to measure the hedging interest rate swap at its settlement value, rather than at fair value, and gives private companies more time to put hedge documentation in place. The alternative also provides certain private companies with relief from fair value measurement disclosure requirements.

The FASB also voted to add a project to its agenda to consider changes to the accounting for goodwill for public companies and not-for-profit entities.

For more information on the activities and proposals of the PCC, see the PCC section of the FASB’s Web site.

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1 ASC 942-320-50-1 defines the term “financial institutions” as including “banks, savings and loan associations, savings banks, credit unions, finance companies, and insurance entities.”