Q: What Are 3 Things That Drive Private Companies Crazy About GAAP?

Posted on 09.29.14

A: Accounting for Goodwill, Variable-Interest-Entities, and Interest Rate Swaps

Hart_Jason_2012
Author: Jason E. Hart, CPA, CFE | Business Assurance & Advisory Services Manager

If the thoughts of testing goodwill for impairment, evaluating commonly-controlled entities for possible consolidation into your operating entity’s financials, or marking-to-market the ‘fair’ value of interest rate swaps make you shudder with frustration, you are not alone. Many private company stakeholders have taken issue with the FASB’s apparent tilt towards large, public companies. To many, the SEC and the FASB have lost their way with Main Street USA. Thankfully, we now have a few common-sense alternatives to the rigid requirements prescribed by the FASB in these three areas….with more to come.

Beginning in late 2012, the Financial Accounting Foundation (“FAF”), the FASB’s parent, established the Private Company Council (“PCC”).  Its mission is to determine whether and when to modify U.S. GAAP for private companies. Unlike previous efforts to create a ‘baby GAAP’ or ‘GAAP lite’, this effort actually has some teeth and has already resulted in some major wins for private companies. I won’t go into the details of the structure of the PCC, or how it works within FASB, but suffice it to say, they are off to a good start. Ultimately, the decisions made by the PCC must be approved by the FASB because those decisions actually effectuate ‘real’ GAAP. Their approved recommendations become fully-permissible alternatives within the Accounting Standards Codification (“ASC”).

Because the PCC’s changes become part of the ASC, your financial statements will still be GAAP-compliant. You can relax some of the more onerous accounting requirements and disclosures. This should result in fewer hours preparing calculations, fewer hours preparing your financial statements, and most-importantly, more relevant information to the users of your financial statements.

We will continue to discuss accounting for goodwill, variable-interest-entities, and interest rate swaps in future articles.

For more specific information on the changes, visit the PCC section of the FASB’s website at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176163767794, or contact your Keiter representative.  804.747.0000 |information@keitercpa.com.  We’ll be glad to help.

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.