3.4 PCC Accounting Standards and Practical Expedients Available to Non-PBEs
The PCC uses the private-company decision-making framework to advise the FASB on
the appropriate accounting treatment for private companies. Nonpublic companies may have
elected to apply alternative accounting standards developed by the PCC and issued by the
FASB. On its Web site, the
FASB states that the PCC was formed in 2012 and is an advisory body whose mission is to
review and propose “alternatives within GAAP to address the needs of users of private
company financial statements.” As a result of the PCC’s activities, the FASB has issued
accounting standards that have allowed private entities to elect alternative accounting
policies intended to reduce the complexity and cost of financial reporting while maintaining
decision-useful information for investors. Once a company (even if it qualifies as an EGC)
is considered a PBE, it is no longer permitted to apply private-company accounting
alternatives. Therefore, any previously elected private-company alternatives would need to
be retrospectively eliminated from the company’s historical financial statements before such
statements can be included in its IPO registration statement.
Similarly, several accounting standards permit
non-PBEs to use certain practical expedients. For
example, non-PBEs are permitted to omit
disaggregation of revenue disclosures in
accordance with ASC 606 as well as to use a
risk-free rate in measuring their lease
liabilities. Companies undertaking an IPO are
considered PBEs and thus may not reflect any of
these practical expedients in their financial
statements filed with the SEC. EGC status only
allows companies to defer adoption of new
standards. Once it adopts a new standard, even an
EGC must comply with the requirements of that
standard that apply to PBEs.
An entity should use caution in implementing the alternative accounting policies
applicable to private entities if it expects that it may undergo an IPO or that its
financial statements may be included in another company’s IPO in the future (e.g., financial
statements of an acquiree under Regulation S-X, Rule 3-05 — see Section 2.5.3).