PCC Votes to Remove Effective Dates From 4 Accounting Standardsby
The Private Company Council (PCC) voted on Dec. 4 to remove the effective dates from four Accounting Standards Updates (ASUs) that were issued in 2014.
By doing so, private companies would be able to forgo a preferability assessment the first time they elect the accounting alternatives contained in those updates.
The Financial Accounting Standards Board (FASB) will consider the PCC's decision and whether to issue a standard that would remove the effective dates at an upcoming meeting.
The PCC advises the FASB on the appropriate accounting treatment for items under the board's consideration and on possible alternatives within US GAAP that address the needs of private company financial statement users.
The four Accounting Standards Updates that could have their effective dates removed are:
- ASU No. 2014-02, IntangiblesâGoodwill and Other (Topic 350), which permits a private company to subsequently amortize goodwill on a straight-line basis over a period of 10 years, or less if the company demonstrates that another useful life is more appropriate. It also permits a private company to apply a simplified impairment model to goodwill.
- ASU No. 2014-03, Derivatives and Hedging (Topic 815), which gives private companies â other than financial institutions â the option to use a simplified hedge accounting approach to account for interest rate swaps that are entered into for the purpose of economically converting variable-rate interest payments to fixed-rate payments.
- ASU No. 2014-07, Applying Variable Interest Entities Guidance to CommonControl Leasing Arrangements, which allows a private company to elect â when certain conditions exist â not to apply variable interest entities (VIE) guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement.
- ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, whichallows a private company to elect an accounting alternative for the recognition of certain intangible assets acquired in a business combination. In this alternative, a private company would no longer recognize the following separate from goodwill: customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of the business, and noncompetition agreements.
Any subsequent change to an accounting policy election would require justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections, according to a FASB memo.
Also during its Dec. 4 meeting, the PCC voted to add a project to its agenda concerning the application of VIE guidance to companies under common control that are not already addressed in ASU No. 2014-07. The PCC directed FASB staff to work with private company stakeholders to develop examples to help clarify application of VIE guidance to such situations.