June 26, 2018
On Tuesday, June 26, 2018, the Private Company Council (PCC) discussed and provided input on the following topics:
- Town Hall Update: PCC members discussed recent Town Hall meetings held and the feedback received on various topics at those meetings. Town Hall participants:
- Expressed support for finalizing a private company accounting alternative to scope entities under common control out of applying variable interest entity (VIE) guidance
- Indicated that accounting for share-based compensation is a topic for the PCC and FASB to simplify for private companies
- Expressed concerns about the level of preparedness for implementing Topic 606, Revenue from Contracts with Customers
- Did not raise any other emerging private company issues that require the immediate attention of the PCC or the FASB.
- Cloud Computing: PCC members supported the consensus of the EITF reached on EITF Issue 17-A at the June 7, 2018 EITF meeting.
- Share-Based Compensation: PCC members discussed the recent outreach performed with users of private company financial statements regarding the relevance of the current accounting requirements for employee share-based compensation arrangements. Results of the outreach suggest that such lenders and other users find share-based compensation expense to be relevant and is usually reviewed to determine the significance of compensation arrangements at a private company. The PCC directed the FASB staff to perform additional research to better understand the feasibility and usefulness of potential practical expedients to fair valuing equity-classified share-based compensation awards. Further, the PCC requested further research on improving the accounting of profits interests arrangements.
- Revenue Recognition: The PCC discussed implementation issues raised in a comment letter submitted by the AICPA Technical Issues Committee (TIC) and Center for Plain English Accounting (CPEA). Those implementation issues included: (1) determining the legal enforceability of the rights and obligations in a contract, (2) accounting for short-cycle manufacturing contracts and (3) accounting for out-of-pocket costs under Topic 606. Generally, the PCC members found the memos prepared by the FASB staff to be educational and helpful. The staff plans to use the content to develop educational materials.
- Balance Sheet Classification of Debt: The PCC collectively requested that the FASB reconsider its prior decision to allow companies to classify debts due within 12 months as long-term debt if the company has unused long-term financing arrangements at the balance sheet date. Due to the various complexities that may arise during the classification analysis under this potential scenario, the PCC felt that the FASB decision to consider unused long-term financing arrangements was not in line with its intent to simplify balance sheet classification of debt.
- Consolidation (Topic 812), Reorganization: The PCC generally supported the project to reorganize the consolidation guidance currently in Topic 810 into a new topic (Topic 812). The PCC indicated that the forthcoming private company accounting alternative will reduce the number of entities that need to apply VIE guidance, but some private company stakeholders will still benefit from the reorganization of the consolidation guidance. Some PCC members expressed concern that reorganizing Topic 810 may result in unintended changes in the application of the guidance.
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.