On the Horizon

Three-Year Review of the Private Company Council (PCC)

At its August 18th meeting, the Board of Trustees of the Financial Accounting Foundation is expected to conclude its three-year review of the Private Company Council (PCC) and its operations.

This review was mandated by the FAF Trustees when they issued the May 2012 report that established the PCC. The purpose of the review is to:
  • Assess whether the PCC is meeting its primary responsibilities and mission
  • Evaluate its continuing role and effectiveness, and
  • Consider any necessary improvements.
The FAF Trustees received 52 comment letters from a diverse group of stakeholders in response to the Request for Comment issued in February. Most respondents expressed support for the PCC and generally agreed with the improvements described in the document. Based on stakeholder feedback, the Trustees are not expected to make significant changes to the PCC’s structure or primary responsibilities.

The FAF Trustees are expected to issue a final report with the amended Responsibilities and Operating Procedures following their August meeting.
At their August 18, 2015 meeting, the Trustees are planning to:
  • Discuss possible amendments to the PCC’s Responsibilities and Operating Procedures to improve the PCC’s effectiveness.
  • Discuss whether and when the Standard-Setting Process Oversight Committee should assume oversight responsibilities for the PCC. The Trustees’ Private Company Review Committee currently has PCC oversight responsibilities.
The FAF Trustees are expected to issue a final report with the amended PCC Responsibilities and Operating Procedures following their August meeting.

Before the end of the year, the FAF Trustees, the FASB, and the PCC will discuss how to implement the revised operating procedures so that they are in place by January 1, 2016.


Review of Employer Defined Benefit Plan Disclosures

The FASB in the next few months is expected to issue a proposed Accounting Standards Update (ASU) intended to improve the Board’s ability to improve the effectiveness of an employer’s disclosures about defined benefit plans.

This project stems from the FASB’s project to improve the effectiveness of disclosures in notes to financial statements—known as the Disclosure Framework project.

A component of that project is to develop a framework that would help the Board identify disclosures to be considered when setting disclosure requirements. Currently, the Board is testing its proposed framework by reviewing disclosure requirements in several areas (including employers’ defined benefit plans) to improve its decision process.

Preparers have challenged whether all of the employers’ defined benefit plan disclosures should be required.
Financial statement users have indicated that employers’ defined benefit plan disclosures are some of the best and most comprehensive disclosures in GAAP. However, preparers have challenged whether all of the disclosures should be required.

For example, some believe that certain defined benefit plan disclosure requirements are not relevant in their particular circumstances, and that providing them can inhibit the effectiveness of their communication.

Reviewing this area will help the Board determine whether the proposed framework identifies defined benefit plan disclosures that are consistent with disclosures that satisfy the needs of investors and other users.

Tentative decisions to date indicate that significant changes to defined benefit plan disclosure requirements are not needed.


Improving the Presentation of Net Benefit Costs

In the next few months the FASB plans to issue a proposed ASU intended to simplify and improve the reporting of net benefit costs.

Stakeholders have expressed concern that net benefit cost of pension and other postretirement benefits combines elements that are distinctly different in their character and reoccurrence.
Stakeholders have expressed concern that net benefit cost of pension and other postretirement benefits (such as health care benefits) combines elements that are distinctly different in their character and reoccurrence. Some stakeholders have said that this results in a net benefit cost number that does not have predictive value for financial statements users.

Many stakeholders also have expressed concerns about the lack of guidance in GAAP regarding where the amount of net benefit cost should be presented in an employer’s income statement, thus reducing the accessibility and usefulness of the information.

To address this issue, the proposed amendments would require a reporting organization to:
  1. Present service cost in the same line item or items as other current employee compensation costs, and present the remaining components of net benefit cost in a separate line item outside operating items, if applicable
  2. Limit the components of net benefit cost eligible to be capitalized to service cost.
     

Government Assistance

Early in the fourth quarter, the FASB expects to issue a proposed ASU intended to improve financial reporting by developing disclosures for government assistance.
The FASB seeks to improve the content, quality, and comparability of financial information in the notes about government assistance.

Currently there is no explicit GAAP guidance for the accounting for government assistance.

Stakeholders have indicated that the lack of guidance in GAAP has resulted in diversity in practice and not enough useful financial reporting information about government assistance.

In this project, the FASB seeks to improve the content, quality, and comparability of financial information in the notes to the financial statements about government assistance that will enable a financial statement user in assessing:
  1. The nature of the assistance and related accounting policies used to account for government assistance
  2. The significant terms and conditions government assistance agreements
  3. The effect of government assistance on a reporting organization’s financial statements, and
  4. The assistance that has not been recognized in the financial statements but may have an effect on the financial statements in future periods.