Insights 2015 - Accounting Update for Private Companies

Accounting Update for Private Companies

Chris Rouse

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Accounting Update for Private Companies – 2015

For Windham Brannon Clients and Friends

Presented byChris RouseWindham Brannon, [email protected]

mailto:[email protected]

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• The Private Company Council’s activities• Background; Big GAAP and Little GAAP• PCC issued 4 ASUs in 2014, and none in 2015• Effect on FASB activity• FAF has reviewed PCC’s activities and has extended its

existence for another 3 years• What’s a private company to do?

– Consider what users want– Consider owner’s exit strategy– PCC GAAP not available for SEC filings

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• American Institute of CPAs– Accounting is too important to be left to the auditors

• Prior to organization of FASB in 1973, AICPA established GAAP

• Subsequent to organization of FASB, AICPA set levels of GAAP

• After FASB formed, AICPA lobbied for creation of several councils, committees, etc to deal with GAAP for non-public companies

• In 2012, in response to FAF not creating separate board for non-public companies, AICPA created a Task Force that in 2013 issued the Financial Reporting Framework for Small and Medium-size Entities (FRF for SMEs)

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• American Institute of CPAs• AICPA’s Financial Reporting Framework for Small

and Medium-Sized Entities– Resulted from AICPA dissatisfaction with FASB response

to Blue Ribbon Panel recommendations• Starting point was Canadian Chartered Accountants document

of same purpose• Canadian document started with UK document of same

purpose• UK document started with IFRS for SMEs

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• American Institute of CPAs• AICPA’s Financial Reporting Framework for Small and

Medium-Sized Entities– 172 pages, 31 Chapters– Blend of current (and former) GAAP and accrual tax

basis– No specific industry guidance– Implementation guidance provides further directions

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• American Institute of CPAs• AICPA’s Financial Reporting Framework for

Small and Medium-Sized Entities– To date, appears to be limited use of FRF for SMEs– Bankers are uncertain about measurement matters– Education is on-going – See

• http://www.aicpa.org/INTERESTAREAS/FRC/ACCOUNTINGFINANCIALREPORTING/PCFR/Pages/Financial-Reporting-Framework.aspx

http://www.aicpa.org/INTERESTAREAS/FRC/ACCOUNTINGFINANCIALREPORTING/PCFR/Pages/Financial-Reporting-Framework.aspx



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• American Institute of CPAs• Accounting Standards Executive Committee

– FASB Codification eliminated AcSEC as accounting standard setter• Statements of Position were considered level 2 GAAP• Industry Audit and Accounting Guides were level 2 GAAP

– AcSEC reorganized as Financial Reporting Executive Committee (FinREC) to speak for the AICPA on financial reporting standards• Also maintains industry audit and accounting guides

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FASB Accounting Standards Updates• Update No. 2015 – 16 – Business Combinations

(Topic 805): Simplifying the Accounting for Measurement-Period Adjustments– Applies to business acquisitions where there are

provisional amounts where fair values could not be determined as of the financial statement date

– Changes current retrospective recognition of provisional amounts to recognize when determined

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• Update No. 2015 – 11 — Inventory (Topic 330): Simplifying the Measurement of Inventory– Changes “market” in LCM to Lower or cost or

net realizable value• NRV is estimated selling price less cost to complete,

dispose and transport• Eliminates market and NRV less normal profit margin

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• Update No. 2015-07 – Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) –Applies to investments in private investment funds that do not frequently or timely measure net asset value– Removes requirement to categorize within the fair

value hierarchy assets measured using practical expedient

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• FASB Accounting Standards Updates• Update No. 2014-18—Business Combinations; Accounting for identifiable

intangible assets acquired (consensus of Private Company Council)– Permits private companies to include in goodwill-

• Customer related intangibles not capable of being sold or licensed independently from other assets of the business (eg, customer lists, mortgage servicing rights)

• Non-compete agreements– To use this accounting, the entity must amortize goodwill under ASU

2014-02– Effective after 12-15-15, early adoption permitted

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• Update No. 2014-17—Business Combinations: Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force)– Follows current practices closely– Applies upon change of control

• Change from current SEC requirement for a substantial change in ownership

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• FASB Accounting Standards Updates• Update No. 2014-7; VIEs – Common control leasing

arrangements (non-public entities)– As an option, a private company may elect not to apply

the VIE Guidance to a leasing entity under common control• Criteria to qualify includes adequacy of collateral for debt

guarantees– Disclosures of quantitative info about lessor entity and

qualitative disclosures re exposure to financial support to lessor

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• FASB Accounting Standards Updates• Update No. 2014-7; VIEs – Common control

leasing arrangements (non-public entities) – (continued) – Point: Consider financial statement user needs– Point: Consider combined financials– Effective FY beginning after 12-15-14; early

application permitted

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• FASB Accounting Standards Updates• Update No. 2014-3; Interest rate swaps (non-public entities)

– Applies to “plain vanilla” hedges that effectively converts variable rate debt to fixed rate • “plain vanilla” means offsetting instruments to achieve

long-term rate• No requirement to test effectiveness of hedge to apply

hedge accounting– Continue to measure hedge instrument at fair value

• Option to measure at settlement value rather than fair value

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• FASB Accounting Standards Updates• Update No. 2014-3; Interest rate swaps (non-public entities)

– (continued)– Point: Applies to private companies that currently do not

use hedge accounting for interest rate swaps, i.e., changes in fair value are included in current earnings rather than Other Comprehensive Income

– All disclosures still apply– Effective FY beginning after 12-15-14; early adoption

permitted

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• FASB Accounting Standards Updates• Update No. 2014-2; Accounting for goodwill (non-public

entities)– Can amortize goodwill over 10 years (from change), or

less– Only test for impairment if triggering event occurs

• If considered impaired on qualitative factors, can elect to test for impairment at entity level or reporting unit level

• Impairment is excess of carrying amount (ie, equity) less the entity/reporting unit fair value

• i.e., no need to determine fair value of individual assets and liabilities

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• FASB Accounting Standards Updates• Update No. 2014-2; Accounting for goodwill (non-

public entities) – (continued)– Point – Goodwill was paid for, so be careful before

writing it off– Point – Net income and equity will be reduced, so plan

for it– Point – EBIDAT and “hard” equity will not be changed – Effective 12-15-14; early application permitted

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• FASB Accounting Standards Updates• Update No. 2013-12; Public Business Entity

– Necessary to define for application of GAAP for private companies

– Includes entities the SEC requires to file or furnish financial statements, and entities required by Securities Exchange Act of 1934 to file or furnish financial statements with regulatory authorities• Includes broker/dealers, non-public entities being acquired by

public entities if filings include the entities financials, etc

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• FASB Accounting Standards Updates• ASU 2013-12 – Definition of a Public Business Entity

(continued)– Includes entities that are required by law, contract or regulation

to make GAAP financial statements publicly available• Not sure of any universal groups that fit this part of the definition

– Not-for-profits and employee benefit plans are excluded because they are not businesses

– Point: A PBE is different than an Issuer– Effective upon issuance

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– In Conclusion …..Bon Auditpetite!Contact :Chris RouseWindham Brannon, [email protected]

mailto:[email protected]

Presentations & Public Speaking

Insights 2015 - Accounting Update for Private Companies