After working with closely held private businesses for the past 17 years, I know for a fact that preparing to file financial statements has always been a challenge for my clients. They often don't know what a Variable Interest Entity (VIE) is. They don't want to know what a goodwill test is. However, they have always been subject to the same U.S. Generally Accepted Accounting Principles (GAAP) rules and procedures that multi-billion dollar public companies must adhere to. This has always been something of a mismatch but the good news is that it is now in the process of being changed, thanks to the efforts of the Financial Accounting Standards Board’s (FASB) Private Company Council (PCC).
The PCC was formed to simplify reporting for private companies. These rules will now be an alternative within GAAP, and will provide owners of closely held businesses with a more cost-effective way of reporting that they can better understand; and more accurately reflect the results of their business.
According to its website, the PCC has two principal responsibilities:
- The PCC and the FASB, working jointly, will mutually agree on a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted for private companies. Based on those criteria, the PCC will review and propose alternatives within U.S. GAAP to address the needs of users of private company financial statements.
- 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.
Several of these changes are permitted for early adoption for financial statements for the year ended December 31, 2013, including goodwill amortization.
In future blogs, I’ll examine some of the issues that the PCC is addressing, such as simplified goodwill reporting, and consolidation of VIEs.