September 11, 2019
The Private Company Council (PCC) met on Wednesday, September 11, 2019. Below is a brief summary of issues addressed by the PCC at the meeting, categorized by project:
- Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards: The PCC and the Board continued their discussion from the June 2019 PCC meeting about a potential practical expedient that would allow private companies to use the exercise price of their equity-classified traditional share-option awards as the current share price input for purposes of determining the grant-date fair value of such awards. The staff provided the PCC with an overview of outreach performed since 2013 on the topic of share-based compensation as well as a detailed analysis of recent outreach with private company practitioners and preparers. Several Board members expressed concern with: (1) whether the identified issue was pervasive and (2) whether, and how, a practical expedient could reduce the cost and complexity associated with determining the current share price input. The PCC and the Board discussed an alternative practical expedient where the current price for equity-classified share-option awards could be leveraged from a valuation that meets the requirements of Section 409A of the United States Internal Revenue Code. With the support of Board members, the PCC directed the staff to (1) draft language for the potential practical expedient and (2) identify additional issues that need to be considered by the PCC at a future meeting.
- Implementation Topic—Leases: The PCC and the Board discussed private company implementation activities related to Update No. 2016-02, Leases (Topic 842), including a dialogue regarding the determination of a lease term in related party lease arrangements and the complexity associated with embedded leases.
- Identifiable Intangible Assets and Subsequent Accounting for Goodwill: The PCC and Board discussed the Invitation to Comment, Identifiable Intangible Assets and Subsequent Accounting for Goodwill. The PCC generally supported the project and provided wide-ranging feedback on the characteristics of goodwill amortization and the potential effects of the project on the existing private company goodwill alternative.
- Simplifying the Balance Sheet Classification of Debt: The staff provided the PCC with an overview of the upcoming revised proposed Update, Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent), resulting from this project. The PCC and the Board discussed the settlement of debt through the issuance of equity and whether the purpose of debt classification should be to signal when or how the debt will be settled. Several PCC members expressed continued support for the decisions reached on unused long-term financing arrangements.
- Distinguishing Liabilities from Equity (Including Convertible Debt): The PCC and the Board discussed the proposed Update, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The PCC expressed its general support for the simplifications for private companies that would be provided by the amendments resulting from the proposed Update.
- Reference Rate Reform: Facilitation of the Effects of the Interbank Offered Rate Transition on Financial Reporting: The staff provided PCC members with an overview of the recently issued proposed Update, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. PCC members discussed the progress of transition away from rates expected to be discontinued as a result of reference rate reform. The PCC and the Board emphasized the importance of making private companies aware of the upcoming change to reference rates and discussed ways to ensure the message reaches a wide range of stakeholders.
- Effective Date Philosophy: The staff provided PCC members with an overview of the proposed Update, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. The PCC expressed its overall support for the proposed philosophy and provided feedback in response to questions about both the two-bucket approach and the appropriate effective date for private company interim financial reporting.
PCC Meeting Recaps are provided for those interested in following the activities of the PCC. Official positions of the PCC and the FASB are reached only after extensive due process & deliberations. More details on the PCC’s input on the FASB’s projects can be found within the meeting minutes, which will be published on the PCC website in the coming weeks.