Private Company Decision-Making Framework
Last updated on November 20, 2013. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.
The objective of this project is to develop a private company decision-making framework (the guide) for the Board and the PCC to use in determining whether and in what circumstances to provide alternative recognition, measurement, disclosure, display, effective date, or transition guidance for private companies reporting under U.S. GAAP. This guide is not intended to be an entirely new conceptual framework that would lead to a basis for preparing financial statements of private companies that is fundamentally different from the basis for preparing financial statements of public companies. Rather, this guide would augment the existing conceptual framework for financial reporting to provide additional considerations in making user-relevance and cost-benefit evaluations under the existing conceptual framework for private companies.
OutreachIn July of 2011, FASB staff completed an initial assessment about how and why the needs of users of private company financial statements differ from those who use public company financial statements, and how the cost-benefit considerations of financial reporting vary between private and public companies. This assessment is a very important input in developing a guide for evaluating when and how to modify U.S. GAAP for private companies. The assessment summarizes what the FASB staff has learned from input from a variety of private company stakeholders over the past few years and its research and papers published on the topic of private company financial reporting.
The staff’s sources include input from FASB advisory groups, including the Private Company Financial Reporting Committee and the Small Business Advisory Committee, comments from those who participated in the FASB’s general and project-specific roundtables held specifically for nonpublic entity stakeholders, comment letter responses, targeted discussions with various individuals and organizations, and comments by members of the Blue-Ribbon Panel on Standard Setting for Private Companies. The staff also took into consideration a number of reports and publications prepared by accounting firms and organizations such as the American Institute of Certified Public Accountants and Financial Executives International.
In addition, the FASB formed a new 10-member Private Company Resource Group to review the accuracy and completeness of the staff’s assessment and to advise the staff in developing a decision-making framework. This Private Company Resource Group includes users, preparers, and auditors of private company financial statements, along with an academic representative and the chairman of the Private Company Financial Reporting Committee.
On July 31, 2012, after consultation with the Board, the FASB staff issued a Discussion Paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies, to gather input from interested stakeholders on a framework for deciding whether and when to modify U.S. generally accepted accounting principles (GAAP) for private companies.
On April 15, 2013, the Board and the Private Company Council issued an Invitation to Comment, Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. This Invitation to Comment represents the views of the Board and the PCC after considering respondents’ comments to the initial Discussion Paper issued on July 31, 2012 as well as the views received through other outreach initiatives.
- Read the Comment Letter Summary
- Download the Invitation to Comment issued on April 15, 2013.
- Read the Press Release issued on April 15, 2013.
- Read the FASB In Focus issued on April 15, 2013.
- Read the Comment Letter Summary
- Download the Invitation to Comment issued on July 31, 2012.
- Read the Press Release issued on July 31, 2012.
- Read the FASB In Focus issued on July 31, 2012.
- Download the FASB In Focus which was released in July 2011.
- Listen to the Podcast also released in July 2011.
- Read the Project Update reviewed during the May 2012 Education Session.
The Board and PCC decided that the six differential factors in the guide are appropriate and directed the staff to make some nonsubstantive clarifications that would increase consistency between the differential factors section in the beginning of the guide and the basis for conclusions.
The Board and the PCC decided that the requirement of quantitative information about the adoption of an alternative transition method by a private company should only be considered in limited circumstances where the nature of the amendment to existing guidance affects information that users of private company financial statements find relevant.
The Board and the PCC decided to remove special consideration of industry-specific guidance within the display module to eliminate redundancy, because the guide already includes a presumption that financial statement display guidance is relevant to users.
In addition, the Board and the PCC decided to add a consideration for cost and complexity in addition to user relevance within the industry-specific guidance section of the disclosure module and the recognition and measurement module. Thus, the consideration of industry-specific guidance would be similar to the consideration of non-industry-specific guidance. However, the guide would acknowledge that there is a greater likelihood that industry-specific guidance is relevant to users of private company financial statements.
Access to Management
The Board and the PCC reaffirmed their consideration of access to management in the disclosure module but decided to remove access to management as a consideration in determining whether a recognition and measurement alternative for private companies should be permitted.
Recognition and Measurement Questions
Question 1.5h (access to management) will be removed from the guide due to the Board’s and PCC’s decision related to access to management.
The Board and PCC decided to improve the wording of question 1.5e (probable threshold) to clarify the meaning of the question.
They also decided to remove question 1.5i; however, the guide will acknowledge that the lag between the year-end reporting date and the date financial statements are issued and made available to users is a difference between private and public companies due to statutory filing requirements for public companies.
All or Nothing
The Board and the PCC reaffirmed their decision to generally permit a private company to select the alternatives within recognition or measurement guidance that it deems appropriate to apply; however, the Board and the PCC may require certain related alternatives be elected as a group.
The Board and the PCC decided not to address the assessment of preferability for private companies in the guide.
Determining the Effective Date
The Board and the PCC reaffirmed their decision that private companies generally should not be required to adopt amendments during an interim period within the fiscal year of adoption.
*Next StepsThe Board and the PCC voted to finalize the guide based on decisions reached at the July 16, 2013 PCC. The final guide is expected to be issued during the fourth quarter of 2013.
Board/Other Public Meeting DatesThe Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards' deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
|July 16, 2013||PCC Meeting—The Board and the PCC finalized the Private Company Decision-Making Framework|
|April 10, 2013||Board Meeting—The Board decided that the comment period for the Private Company Decision-Making Framework should end on June 21, 2013.|
|February 12, 2013||PCC Meeting—The Board and the PCC made decisions related to the Private Company Decision-Making Framework.|
|July 20, 2012||Education Session—The staff discussed with the Board their remaining questions before the release of the Invitation to Comment on the decision-making framework for private companies. No decisions are made at education sessions.|
|May 14, 2012||Education Session—Discussion about the staff’s progress toward developing a decision-making framework for private companies. Refer to linked presentation used to facilitate the update provided by the staff. No decisions are made at education sessions.|
Background InformationCreation of a decision-making framework about standard-setting for private companies was one of the important recommendations included in a report by the Blue-Ribbon Panel on Standard Setting for Private Companies released in January 2011 to the Board of Trustees of the Financial Accounting Foundation (FAF), which is the FASB’s oversight organization. The Blue-Ribbon Panel’s report also included a short-term recommendation that the FASB begin work on the framework while the FAF Trustees consider the other recommendations in its report.
Completion of the proposed private company decision-making framework underscores the FASB and the PCC’s ongoing commitment to better serve the needs of all private company stakeholders, including users and preparers of private company financial statements, without sacrificing the quality and fundamental level of comparability of U.S. GAAP financial statement reporting.
Contact InformationMichael Cheng
Jeffrey D. Mechanick
Project Research Associate
Postgraduate Technical Assistant