June 24 and 25, 2019
The Private Company Council (PCC) met on Monday, June 24, 2019, and Tuesday, June 25, 2019. Below is a brief summary of issues addressed by the PCC at the meeting, categorized by project:
- Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards: PCC and Board members continued their discussion from the April 2019 meeting about a potential practical expedient to allow private companies to use the exercise price of their equity-classified share options as the current price for purposes of determining the grant-date fair value of an award in certain circumstances. The FASB staff updated the PCC on the recent outreach performed with auditors, which was focused on understanding the process a private company uses to establish an award’s strike price and the audit procedures associated with that process (and on determining whether the award has been issued at-the-money). PCC and Board members discussed the auditors’ responses to a preliminary draft of the potential practical expedient and continued discussions on whether cost and complexity associated with determining the current price input is an accounting issue (that can be effectively addressed through standard setting) or an audit issue. PCC members decided that additional outreach should be performed, with preparers, to better understand a preparer’s process for establishing the strike price of an equity-classified award and substantiating whether it is at-the-money. In addition, this outreach will be used to determine whether the preparers think that the potential practical expedient will impact their process by reducing costs in determining the fair value of the shares.
- Implementation Topic—Leases: PCC members discussed private company implementation activities related to the new leasing standard. PCC members observed that many private company stakeholders are not adequately prepared for the upcoming effective date and discussed the factors that have contributed to that concern.
- Identifiable Intangible Assets and Subsequent Accounting for Goodwill: The staff provided PCC members with an overview of the upcoming Invitation to Comment. Members provided wide-ranging feedback in response to a list of potential characteristics that could be used in determining goodwill amortization periods; some members supported a default amortization period, while others favored an amortization period reflecting management’s reasonable estimate.
- Effective Dates Philosophy: PCC members discussed the Board’s consideration of a delayed effective date for private companies beyond what has generally been given (which is one year after public business entities). PCC members provided mixed responses regarding whether private companies need more than a one-year delay versus larger public companies. PCC members supported the Board’s consideration of the issue and generally, a longer delay in the effective date for more comprehensive standards.
- Reference Rate Reform: Facilitation of the Effects of the Interbank Offered Rate Transition on Financial Reporting: The staff provided PCC members with an overview of the recent Board decisions related to contract modifications. Board and PCC members highlighted the importance of making private companies aware of the upcoming change to reference rates as well as the guidance and related accounting relief the FASB is considering, and they discussed ways to ensure the message reaches a wide range of stakeholders.
- Implementation Topic—Current Expected Credit Losses (CECL): The staff provided PCC members with an overview of recent standard-setting activities related to CECL. PCC members discussed potential difficulties for private companies and urged the Board to continue to provide training and examples as the effective date approaches.
- Simplifications to Accounting for Income Taxes: The staff presented PCC members with an outline of the eight issues included in the proposed Update and educated members on four of the issues most likely to affect private companies. PCC members expressed general support for the simplification initiative and proposed Update.
- Emerging Issues Task Force (EITF) & Revenue Recognition: The staff updated PCC members on the three EITF issues discussed at the June Task Force meeting.
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.