A Lesson in Private Company Financial Reporting:
Keep Our Ears and Minds Open
2017 was a very productive time for the FASB as it tackled important financial accounting and reporting issues that concern private companies.
We attribute this success to a strengthened collaborative relationship between the FASB and the PCC, and the valuable input we received from our private company stakeholders.
This year PCC members fully embraced their increased advisory role to the FASB. They became much more active within the FASB’s standard-setting process.
For example, this year PCC members fully embraced their increased advisory role to the FASB. They became much more active within the FASB’s standard-setting process.
This greater engagement also opened the door for more private company stakeholders to provide input on a variety of FASB projects. A true snowball effect, all of this helped the FASB better address private company concerns before standards were issued, not after.
With that in mind, in this article we want to recognize some of the PCC’s important advice to the FASB on key projects in the past year:
Consolidation Targeted Improvements to Related Party Guidance for Variable Interest Entities (VIE)
The PCC supports an accounting alternative where a private company would not have to apply VIE guidance to legal entities under common control (including common control leasing arrangements).
Balance Sheet Classification of Debt
PCC members preliminarily supported the proposed guidance (with minor improvements), and would like to help the Board determine appropriate transition provisions and assist in educating stakeholders on the new requirements.
Financial Instruments—Hedge Accounting
The PCC supports overall simplification to hedge accounting and supports simplification provided under “Statement of Intent to Hedge” for private companies.
Customer's Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement (CCA) That Is Considered a Service Contract
PCC members generally supported only the implementation costs to be capitalized, not the costs of the fees paid in a CCA considered to be a service contract.
Liabilities and Equity—Targeted Improvements
PCC members support FASB’s standard that simplifies the accounting of financial instruments with “down rounds.” The PCC’s discussions were instrumental to the FASB as it developed the proposed standard.
Nonemployee Share-Based Payment Accounting Improvements
The PCC supports FASB’s effort to simplify nonemployee share-based payment accounting by aligning the nonemployee accounting model with the employee model.
These are good examples of how the PCC’s advice helped ensure that the FASB “gets it right” when it improves private company financial reporting.
Private company stakeholders also provided valuable insights through Private Company Town Halls and submitted comments.
But actionable advice doesn’t solely come from PCC members. Private company stakeholders also provided valuable insights through Private Company Town Halls and submitted comments.
This year FASB and PCC members met with stakeholders at two Town Halls to discuss current FASB projects and recently issued standards. Stakeholders also asked questions and provided input to the FASB and the PCC on private company financial reporting issues.
The first Town Hall in 2017 was held at the National Advanced Accounting and Auditing Technical Symposium in June 2017. Video of the Town Hall can be found here and here.
We held the second Town Hall at the Georgia Society of CPAs 2017 Southeastern Accounting Show. FASB Chairman Russ Golden delivered remarks regarding how private company concerns are addressed in the FASB’s decisions.
The FASB staff is currently planning Private Company Town Halls for 2018, and the next PCC meeting (with new PCC members) will be held on April 20, 2018, in Norwalk, CT. We hope you attend the meeting either in person or on-line, and participate in the Town Halls!
While the FASB and PCC welcome input from all types of stakeholders, we are especially eager to receive more input from users of private company financial statements.
We believe these Town Halls are important opportunities for private company stakeholders to provide feedback. They also provide opportunities for the Board, FASB staff, and PCC members to educate stakeholders on current projects affecting private companies.
While the FASB and PCC welcome input from all types of stakeholders, we are especially eager to receive more input from users of private company financial statements. So, if you are an investor, lender, or venture capitalist, and have questions or concerns about private company financial reporting—we are all ears!
In the meantime, we look forward to a busy and productive year. For more information on the PCC and the FASB’s endeavors to improve financial accounting and reporting for private companies, visit the FASB website.