Presentation Transcript

1. Wichita State University

   FASB Update – Private Company

   Michael Cheng FASB Project Manager, PCC Coordinator WSU Accounting & Auditing Conference May 20, 2014 The views expressed in this presentation are of the presenter. Official positions of the PCC and the FASB are reached only after extensive due process & deliberations.
2. What We Will Discuss Today The Private Company Council Private Company Decision-Making Framework Definition of a Public Business Entity PCC Activities to Date
3. Private Company Council
4. Private Company Key Events FASB creates Private Company Financial Reporting Committee (PCFRC) FAF works with AICPA & NASBA to create Blue-Ribbon Panel FAF appoints Trustees and staff to “Working Group” FAF seeks public comment on plan to create PCSIC 2006 2009 2010 Jan. 2011 Oct. 2011 May 2012 FAF creates Standard-Setting Process Oversight Committee FAF undertakes nationwide “listening tour” Blue-Ribbon Panel submits report to FAF Trustees FAF establishes the Private Company Council (PCC)
5. Private Company Council (PCC) . . . Structure
6. PCC… Agenda Process
7. PCC… Process
8. Endorsement Process and Voting PCC proposes GAAP alternatives Two-thirds vote required FASB endorsement by simple majority FASB act within 60 days If FASB does not endorse, must provide written notification to PCC indicating changes that would result in endorsement
9. Private Company Decision-Making Framework
10. Private Company Decision-Making Framework Tool for PCC and FASB ID & provide alternatives based on differential factors Number of users and access to management Investment strategies of primary users Ownership & capital structure Accounting resources Learning about new guidance
11. Private Company Decision-Making Framework Tool for PCC and FASB Where guidance differ between public & private (modules) Recognition & Measurement Display (Presentation) Disclosures Effective Date Transition Method Apply to PCC look-back projects & ongoing FASB projects
12. PCDMF…Fundamentals Assist in user-relevance and cost-benefit evaluations for private companies under the existing conceptual framework Intended to facilitate decisions & drive consistency Fundamental approach retains or improves information relevant to typical users Reduce cost & complexity, but not adversely affecting reporting of relevant information
13. Definition of Public Business Entity
14. Public Business Entity…Current GAAP Definition: A Business Entity That Meets Any One:
15. Public Business Entity…New to GAAP Definition: A Business Entity That Meets Any One: It has one or more securities that are not subject to contractual restrictions on transfer, and it is required to prepare U.S. GAAP financial statements and make them publicly available on a periodic basis.
16. PCC Activities to Date
17. PCC…Meetings
18. PCC…Specific Projects Goodwill (completed) Interest Rate Swaps (completed) Common Control Leases (completed) Identifiable Intangible Assets (in process) Pre-agenda research areas Advising the FASB
19. Final Alternatives
20. Goodwill. . . Problem? Stakeholder Concerns
21. Goodwill. . . Solution Current U.S. GAAP Final Alternative Do not amortize goodwill Test for impairment at least annually or more frequently Goodwill impairment test At reporting unit level Two-step test Optional qualitative assessment Amortize goodwill Test for impairment upon occurrence of triggering event Goodwill impairment test At entity level or reporting unit level One-step test Optional qualitative assessment
22. Goodwill… Solution Transition Amortize existinggoodwill prospectively over 10 years or less if the private company can demonstrate that another useful life is more appropriate. Effective Date Applied prospectively for existing goodwill and new goodwill recognized in the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early adoption is permitted.
23. Goodwill. . . Benefits of Alternative
24. Interest Rate Swaps . . . Problem? Stakeholder Concerns
25. Interest Rate Swaps
26. Interest Rate Swaps – Simplified Hedge Accounting Transition Effective Date Private companies may apply either the modified retrospective approach or the full retrospective approach upon adoption. Existing swaps as of the date of adoption may qualify for the simplified hedge accounting approach. Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early application is permitted.
27. Common-Control Leasing . . . Arrangements Owner 100% Interest 100% Interest Manufacturing Company Leasing Company Pays Rent Leases Land & Building Debt Mortgage Bank Bank Typical private company arrangement:
28. Common Control Leasing… Solution Lessees may elect alternative not to apply VIE guidance whencertain conditions are met. Not require VIE disclosures – instead require specific information on Lessor entity. Important Note – Not meeting the criteria above does not automatically result in consolidation.
29. Common Control Leasing… Solution Transition Full retrospective approach. Effective Date Effective for the first annual period beginning after December 15, 2014, and interim and annual periods thereafter. Early application is permitted.
30. Common-Control Leasing . . . Solution The “VIE Alternative” . . .
31. Current Projects
32. Identifiable Intangible Assets. . . Problem? Business Combination Some question that the requirement for separate recognition & measurement of certain identifiable intangible assets from goodwill does not provide users with decision-useful information Cost & complexity: estimating fair value of certain assets, including some identifiable intangible assets, e.g. customer relationships
33. Identifiable Intangible Assets . . . Solution? At April 29 meeting, PCC discussed various alternatives, including: Recognizing & measuring only intangible assets capable of being sold or licensed independently Principle-based vs rules-based approach Directed staff to perform more analysis and outreach Next Steps
34. Definition of Public Business Entity (Phase 2) . . . Problem? Concerns Codification includes 5 definitions of a nonpublic entity, 3 definitions of a public entity, and 2 definitions of a publicly traded company Resulting in a total of 7 unique definitions Could be confusing to identify scope
35. Definition of Public Business Entity (Phase 2) . . . Solution? Results of April 29, 2014 Meeting: Added definition of a public business entity to the PCC agenda.
36. PCC . . . Other Issues Uncertain Tax Positions Development stage entities Prior research resulted in FASB standard currently being issued Stock-based compensation Research on valuation concerns
37. PCC… Advising on FASB Projects Revenue Recognition Leases Accounting for Financial Instruments Going Concern Disclosure Framework Government Assistance Reporting Discontinued Operations
38. Seeking Input
39. Staying in Touch . . . Providing Input Submit comment letters on proposals Email PCC on issues affecting you: comments@privatecompanycouncil.org Outreach meetings Attend/watch upcoming PCC and FASB meetings. Next PCC mtgs: 7/15, 9/16, 12/11 Subscribe to the FASB Outlook www.fasb.org/fasboutlook

40. Questions?