April 20, 2021
The Private Company Council (PCC) met on Tuesday, April 20, 2021. Below is a brief summary of issues addressed by the PCC at the meeting:
- PCC Issue No. 2018-01, “Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards”: The PCC redeliberated issues for the proposed Accounting Standards Update, Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Option Awards. The PCC discussed how the practical expedient should reference the Treasury Regulations of Section 409A of the U.S. Internal Revenue Code—by direct reference to specific paragraphs, by a summarization of those paragraphs, or by a combination of those two approaches. The PCC also redeliberated the scope, application, transition method, and effective date of the practical expedient. After redeliberating those issues, the PCC unanimously determined that the practical expedient would achieve the project’s intended objectives. At its June 2021 meeting, the PCC will discuss a draft of the final Update and consider whether to recommend that it be subject to the FASB endorsement process.
- Agenda Consultation: A PCC member provided a summary of the financial reporting issues that the Board should consider adding to its technical agenda and the priority of those issues, which were discussed during the closed PCC meeting that took place on April 19, 2021. Those issues included debt modifications, troubled debt restructurings, disclosure materiality, liabilities and equity, variable interest entities, and financial performance reporting. PCC members discussed their views with FASB Board members and staff on those potential areas for the Board to prioritize. PCC members also expressed support for the FASB’s goodwill and segment reporting projects.
- Goodwill—Triggering Event Assessment Alternative for Private Companies and Not-for-Profit Entities: FASB staff highlighted Accounting Standards Update No. 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events, which provides an accounting alternative that allows private companies and not-for-profit organizations to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period is an interim or annual period. This accounting alternative is expected to reduce the complexity for private companies and not-for-profit organizations when performing the goodwill triggering event assessment. The Board thanked the PCC and private company stakeholders for their involvement in developing this standard.
- Profits Interests and Their Interrelationship with Partnership Accounting: FASB staff summarized outreach with taxation and valuation specialists that has been conducted since the December 3, 2020 PCC meeting. Key discussion areas with specialists included (1) typical circumstances surrounding the grant of a profits interest award, (2) common terms of profits interests, (3) how the language in Revenue Procedure 93-27 (which defines a profits interest for tax purposes) influences the terms of profits interests, and (4) how valuation techniques used to measure profits interests compare to valuation techniques used to measure other types of equity interests issued as compensation. FASB staff noted that next steps involve performing additional outreach and research focused on some of the key accounting issues on profits interests and analyzing the FASB’s agenda criteria as it relates to identified issues. PCC members briefly provided feedback on the research performed so far and next steps.
- Current Issues in Financial Reporting: PCC and FASB members discussed practice issues arising from the current business environment under the COVID-19 pandemic. Topics discussed included disclosures related to COVID-19 and Paycheck Protection Program loan classification. The PCC also thanked the FASB for issuing certain educational documents in response to the current environment. Those documents include the FASB Staff Educational Paper, “Topic 470 (Debt): Borrower’s Accounting for Debt Modifications,” and the FASB Staff Q&A, “Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic.”
- Revenue—Post-Implementation Review: FASB staff solicited feedback from PCC members on their implementation experience with Topic 606, Revenue from Contracts with Customers, and on the post-implementation review plan for private companies. PCC members commented about their usage of the implementation resources provided by the FASB and discussed challenges and issues related to the adoption of Topic 606.
- Disclosure of Supplier Finance Programs Involving Trade Payables: FASB staff summarized the features of supplier finance programs, provided an overview of the project, and solicited feedback from PCC members on the use of those programs by private companies. Although PCC members generally had not encountered the arrangements from the perspective of the entity for which the Board is evaluating potential disclosures, certain PCC members discussed their experience in accounting for the programs and with factoring transactions more broadly. The PCC chair offered to perform outreach with private company stakeholders during upcoming PCC Town Halls to further gauge the use of the programs among private companies.
- Leases (Topic 842)—Discount Rate for Lessees That Are Not Public Business Entities: FASB staff provided the PCC with an overview on this FASB project, which was added to the FASB agenda on April 14, 2021. This project seeks to amend the accounting policy election for lessees that are not public business entities to elect to use the risk-free rate as the discount rate by asset class. A PCC member offered preliminary feedback and volunteered to discuss further with the FASB staff at a later date.
- Simplifying the Balance Sheet Classification of Debt: FASB staff provided the PCC with an update on this FASB project. At its April 14, 2021 meeting, the Board discussed comments received on and redeliberated the proposed amendments in its January 2017 proposed Accounting Standards Update and its September 2019 proposed Accounting Standards Update (Revised), Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent). At that meeting, the Board removed this project from the FASB technical agenda.
PCC Meeting Recaps are provided for those interested in following the activities of the PCC. Official positions of the PCC and the FASB are reached only after extensive due process & deliberations. More details on the PCC’s input on the FASB’s projects can be found within the meeting minutes, which will be published on the PCC website in the coming weeks.