FASB OKs Standards on Goodwill and Interest Rate Swaps

By Jason Bramwell, Staff Writer

The Financial Accounting Standards Board (FASB) on November 25 endorsed two standards – accounting for interest rate swaps and accounting for goodwill in a business combination for private companies – that were finalized by the Private Company Council (PCC) last month.

The final standards are expected to be issued by the end of this year. The FASB works with the PCC to determine whether and when to modify US Generally Accepted Accounting Principles (GAAP) for private companies.

“These two standards address issues that users, preparers, and public accountants of private company financial statements have told us are a priority,” PCC Chairman Billy Atkinson told AccountingWEB.

The first standard – Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps - Simplified Hedge Accounting Approach – would give private companies, other than financial institutions, the option to use a simplified hedge accounting approach to account for certain types of interest rate swaps that are entered into for the purpose of economically converting variable-rate interest payments to fixed-rate payments.

The alternative to US GAAP would also extend the exemption from certain fair value disclosures to private companies for which such swaps are their only derivatives.

The finalized proposal on interest rate swaps differed from the original proposal the PCC issued in May. The original proposal enabled private companies to use both a simplified hedge accounting approach and a combined instruments approach to account for certain types of interest rate swaps.

The PCC decided to separate the combined instruments approach from the revised proposal and directed FASB staff to conduct more research on the combined instruments approach for further discussion at the January 2014 PCC meeting.

The second standard – Accounting for Goodwill Subsequent to a Business Combination – would permit a private company to subsequently amortize goodwill over a period of ten years, or less under certain circumstances, and to apply a simplified impairment model to goodwill. Goodwill is defined by the FASB as the residual asset recognized in a business combination after recognizing all other identifiable assets acquired and liabilities assumed.

The FASB also voted to add a project to its agenda to consider whether the changes to accounting for goodwill also should apply to public companies.

The original proposals of both alternatives as well as an accounting proposal on intangible assets acquired in business combinations were endorsed by the FASB on June 10. The public comment period on the three PCC accounting proposals’ exposure drafts ended on August 23.

During its last meeting on November 12, the PCC continued discussion on the proposal, Accounting for Identifiable Intangible Assets in a Business Combination, and directed FASB staff to conduct additional research for further discussion during the PCC’s January 2014 meeting.

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