Simplified GAAP Proposed for Private Companies

stock-photo-5770951-financial-abstractIn 2012, the Private Company Council (PCC) was created by the Financial Accounting Foundation to improve the process of setting accounting standards for private companies. Among the PCC’s chief responsibilities is to work with the Financial Accounting Standards Board (FASB) to review and propose alternatives within U.S. generally accepted accounting principles (GAAP) to address the needs of private company financial statements.

Goodwill Proposal Finalized

Last July, FASB issued for public comment several PCC proposals that address the relevance and complexity of certain aspects of GAAP for private companies, including accounting for intangible assets acquired in business combinations and goodwill.

In October, the PCC voted to finalize the proposal regarding goodwill that would allow private companies to amortize goodwill on a straight-line basis over 10 years (or less if the entity can demonstrate that another useful life is more appropriate). The proposal would also limit the requirement for goodwill impairment testing to times when a triggering event indicates that the fair value of the entity is below its carrying amount.

The PCC also discussed narrowing the intangible assets acquired in a business combination that private companies would be required to identify and recognize separately from goodwill. The PCC will continue to discuss this proposal after further research by FASB staff.

Awaiting FASB Endorsement

FASB is discussing the proposed alternatives for goodwill accounting, as well as considering their applicability to publicly traded companies and not-for-profit organizations. If FASB endorses the alternatives, they will be issued as final Accounting Standards Updates and would take effect for periods be-ginning after December 15, 2014. Early application would be permitted.  

 Contact us to discuss how the proposed standards may affect your accounting.