Yesterday, the FASB and the Private Company Council (PCC)¹ jointly issued an invitation to comment (ITC)² on an updated version of the private-company decision-making framework proposed in the FASB staff’s July 2012 discussion paper (DP).³ The updated framework outlines criteria that would be used by the FASB and the PCC for evaluating whether and under what circumstances alternative guidance under U.S. GAAP should be provided for private companies.⁴

As did the July framework, the updated framework identifies the following five areas in which alternative guidance for private companies might be considered because the financial accounting and reporting needs of such companies might differ from those of public companies: (1) recognition and measurement, (2) disclosures, (3) presentation, (4) effective date, and (5) transition. The FASB and PCC also proposed certain changes as a result of feedback on the July DP, including removal of the presumption that industry-specific guidance on recognition and measurement would be as relevant to users of private-company financial statements as it would be to users of public-company financial statements. Accordingly, the FASB and PCC would consider the relevance of industry-specific guidance separately for public companies and private companies and would propose alternative guidance for private companies if warranted.

In addition, the ITC notes that a private company would generally be able to “select the alternatives within recognition or measurement guidance that it deems appropriate to apply without having to apply all alternatives within recognition and measurement.” However, the ITC also notes that “in certain circumstances, the Board and the PCC may require that application of alternatives for private companies within recognition or measurement in one area be linked to the application in another area.”

Comments on the ITC are due by June 21, 2013. Watch for Deloitte’s upcoming Heads Up on this topic.

1 Formed on May 23, 2012, the PCC is tasked with improving the accounting standard-setting process for private companies. See Deloitte’s June 5, 2012, Heads Up on the establishment of the PCC.

2 FASB Invitation to Comment, Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies.

3 FASB Discussion Paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies. See Deloitte’s August 7, 2012, Heads Up for more information.

4 As part of a separate but concurrent project on the definition of a nonpublic entity, the FASB is deliberating which types of companies would be considered private companies (nonpublic business entities) to determine which entities would be within the scope of the private-company decision-making framework. Tentative decisions about the types of entities that would be considered outside the scope of the framework are discussed in paragraphs 8 through 11 of the ITC.