April 25, 2023
The Private Company Council (PCC) met on Tuesday, April 25, 2023. Below is a summary of topics addressed by the PCC at the meeting:
- Accounting for and Disclosure of Software Costs: FASB staff summarized the Board’s recent tentative decision to pursue the single model (formerly referred to as the initial development cost model) in which all direct software development costs are capitalized from the point at which it is probable that the software project will be completed and the software will be used to perform the function intended until the software project is substantially complete and ready for its intended use. PCC members discussed elements of the single model (specifically, the probable threshold, unit of account, maintenance and enhancements, and presentation and disclosure). Most PCC members supported the probable threshold supplemented with indicators to improve consistency in application. PCC members highlighted the challenge of determining the unit of account in an agile environment. Most PCC members emphasized the challenges in distinguishing between maintenance and enhancements. Some PCC members suggested providing a guiding principle for distinguishing between maintenance and enhancements rather than specifically defining each type of cost. PCC members who are users highlighted the importance of disclosures about software costs in assessing future cash flows and understanding capital allocation decisions made by management. Alternatively, other PCC members expressed concern about the level of detail and additional costs for the potential required disclosures.
- Accounting for and Disclosure of Crypto Assets: FASB staff summarized the main provisions of the proposed Update, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, including scope, measurement, presentation, disclosure, effective date, and transition. Overall, PCC members mostly expressed support for the amendments in the proposed Update. However, PCC members provided mixed feedback on effective date and transition. Most PCC members stated that the effective date should be the same for both public and private companies. Alternatively, some PCC members expressed concern for having the same effective date for both public and private companies and suggested allowing additional time for private company adoption but permitting early adoption. One PCC member who is a preparer highlighted the importance of considering what interim disclosures would be required for private companies. Additionally, another PCC member indicated that there should not be a disclosure of the cost basis in addition to units held and fair value of crypto asset holdings.
- Stock Compensation Disclosures: FASB staff and members of the PCC’s stock compensation disclosures working group provided the PCC with an update on the working group’s progress and an overview of stakeholder feedback received from private company financial statement users. Working group members noted that the feedback received has been helpful and that they are planning additional user outreach with lenders. Additionally, working group members noted that disclosures that certain users find relevant vary based on their respective backgrounds and type of analysis. The working group is also planning additional outreach with private company preparers and practitioners. A summary of all private company stakeholder feedback received will be presented to the PCC at a later date.
- Leases Implementation, including Leases—Common Control Arrangements: The PCC discussed the post-implementation review activities related to Topic 842, Leases, including Accounting Standards Update No. 2023-01, Leases (Topic 842): Common Control Arrangements, to improve the accounting for arrangements between entities under common control. PCC members commented that the amendments are responsive to stakeholder concerns and should assist with the implementation of Topic 842. Some PCC members advised that some stakeholders may not be aware of the amendments and suggested that the FASB increase educational efforts on the amendments in Update 2023-01. PCC members observed that the determination of lease commencement date can be challenging in certain circumstances, such as when the lessor engages the lessee to complete construction of the underlying asset. PCC members noted that standard setting may not be necessary to address those challenges but suggested the FASB consider providing additional education for stakeholders.
- Credit Losses—Implementation: PCC members discussed CECL implementation feedback obtained during a meeting that one PCC member recently coordinated with several peers representing nonpublic financial institutions. Participants discussed certain implementation challenges, such as the sufficiency of historical loss data and determining the allowance for off-balance-sheet credit exposure. However, most participants described their overall implementation experience as generally positive. The PCC Chair noted that her clients experienced similar implementation challenges.
- Disaggregation—Income Statement Expenses: FASB staff summarized the Board’s recent decisions, including that the disclosure requirements would only apply to public business entities. Overall, PCC members supported the exclusion of private companies from the disclosure requirements.
- Joint Venture Formations: FASB staff summarized the key amendments that will be included in the final Accounting Standards Update, which is expected to be issued in the second half of 2023. One PCC member and the PCC Chair expressed their support for the Board’s decision made during redeliberations to allow a joint venture to apply the business combinations measurement period guidance.
- Other Business: The PCC will hold a two-part interactive, town-hall style forum at the annual AICPA ENGAGE conference scheduled for June 5, 2023. The FASB will hold its next semiannual webcast, IN FOCUS: FASB Update for Private Companies and Not-for-Profit Organizations, on June 12, 2023.
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.