PCC PROPOSES CHANGES TO CONSOLIDATION OF VARIABLE INTEREST ENTITIES
Norwalk, CT, July 16, 2013—The Private Company Council (PCC)
today voted to expose a proposed alternative within U.S. Generally Accepted
Accounting Principles (GAAP) for applying consolidation guidance for leasing
entities under common control. The PCC and the Financial Accounting Standards
Board (FASB) also voted to finalize the Private Company Decision-Making
The proposed GAAP alternative, PCC Issue No.
13-02, Applying Variable Interest Entity Guidance to Common Control
Leasing Arrangements (formerly FIN 46(R) and FAS 167), would exempt private
companies from applying the consolidation guidance for variable interest
entities under common control leasing arrangements. A variable interest entity
is an organization in which consolidation is not based on a majority of voting
rights. The disclosures to be provided under the alternative would better align
the information that lenders and other users of private company financial
statements typically use in assessing the cash flows of a reporting entity.
The PCC´s decision to move forward with the proposal is the first step in a
process toward exposure by the FASB. The FASB staff will draft a detailed
proposal, which the Board will discuss in the coming weeks. If the Board decides
to endorse the proposal, it will be issued for public comment as a proposed
Accounting Standards Update.
"In advancing the PCC´s fourth accounting
standards proposal, the PCC is making significant progress in tackling issues
top of mind for users, preparers, and auditors of private company financial
statements," said PCC Chairman Billy M. Atkinson.
In addition to the
action on variable interest entities, the PCC and the FASB also voted to
finalize the Private
Company Decision-Making Framework (the Guide), which outlines criteria to
determine whether and in what circumstances it is appropriate to adjust
financial reporting requirements for private companies following U.S. GAAP. The
Guide is intended to aid the PCC and the FASB in identifying opportunities to
enhance the relevance to users and reduce the cost and complexity of preparing
private company financial statements in accordance with U.S. GAAP. The Guide is
expected to be issued by the end of the summer.
At the PCC´s
recommendation, the FASB also voted to add a narrow scope project to its agenda
to address the concerns of public and private company stakeholders on
development stage companies. Accounting Standards Codification Topic 915,
Development Stage Entities (formerly FAS 7), requires a development stage
company to conduct its accounting and prepare its financial statements using the
same accounting principles as an established operating company. It also requires
a company to report additional cumulative information for each income statement
item and in the statement of cash flows from the company´s inception. In
addition, a company must report the history of all transactions from inception,
including noncash considerations.
"The PCC and the FASB identified
issues concerning development stage companies that were found to affect both
private and public companies—therefore we agreed that the project should be
added to the FASB agenda," said FASB member and PCC liaison Daryl E. Buck. "The
FASB will be seeking input on the issue from investors and preparers from public
and private companies alike."
During the meeting, the PCC also continued
its discussion on the FASB´s projects on Accounting
for Financial Instruments, Leases,
Framework, among others.
The PCC also announced a public roundtable
and town hall meeting on Monday, November 4, 2013, at Ohio State University in
Columbus, Ohio to seek input from private company stakeholders on issues
affecting them, the PCC´s projects to date, and FASB´s projects impacting
For more information, visit the PCC
About the Private Company Council (PCC)
determines alternatives to existing nongovernmental U.S. GAAP to address the
needs of users of private company financial statements, based on criteria
mutually agreed upon by the PCC and the FASB. Before being incorporated into
U.S. GAAP, PCC recommendations will be subject to a FASB endorsement process.
The PCC also serves as the primary advisory body to the FASB on the appropriate
treatment for private companies for items under active consideration on the
FASB´s technical agenda.
About the Financial Accounting Standards
Since 1973, the Financial Accounting Standards Board has
been the designated organization in the private sector for establishing
standards of financial accounting and reporting. Those standards govern the
preparation of financial reports and are officially recognized as authoritative
by the Securities and Exchange Commission and the American Institute of
Certified Public Accountants. Such standards are essential to the efficient
functioning of the economy because investors, creditors, auditors, and others
rely on credible, transparent, and comparable financial information. For more
information about the FASB, visit our website at http://www.fasb.org/.