June 22 and 23, 2023

The Private Company Council (PCC) met on Thursday, June 22, and Friday, June 23, 2023. Below is a summary of topics addressed by the PCC at the meeting:
  • Improvements to Income Tax Disclosures: FASB staff summarized the main proposed amendments for private companies in the proposed Accounting Standards Update, Income Taxes (Topic 740): Improvements to Income Tax Disclosures and highlighted comment letter feedback pertaining to private companies. Overall, user PCC members expressed support for the enhanced disclosures in the proposed Update, stating that the disclosures would provide useful information. Some practitioner PCC members questioned the relevance of the proposed changes to the qualitative rate reconciliation disclosure for private companies, noting that it would impose additional costs, while acknowledging the current requirement for private companies to disclose qualitative information about the rate reconciliation. Some preparer PCC members stated that the disclosures would not impose significant additional costs to prepare. Some PCC members suggested aggregating state income taxes paid information and expressed concern with the interaction of materiality and the proposed 5 percent threshold for income taxes paid to individual jurisdictions. Other PCC members noted that aggregation of the taxes paid disclosure would diminish the utility of the information. Most PCC members supported providing private companies with additional time to implement the proposed amendments beyond the effective date for public business entities. User PCC members supported retrospective transition to assess trends but noted that they would support prospective transition to get the information sooner.
  • Disclosure Improvements in Response to the SEC’s Release on Disclosure Update and Simplification: FASB staff summarized the Board’s recent decisions during redeliberations of SEC-referred disclosures included in the proposed Accounting Standards Update, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosures Update and Simplification Initiative, including required disclosures for private companies, effective date, and transition. PCC members expressed support for the Board’s decisions applicable to private companies. PCC members asked clarifying questions about specific disclosures and the effective date for private companies.
  • Credit Losses—Implementation: FASB staff provided an update on the Purchased Financial Assets project and asked PCC members for feedback on that project and on other credit losses implementation matters. Some PCC members discussed their observations on the scope of the credit losses guidance and the application of that guidance by entities that are not financial institutions.
  • Scope Application of Profits Interest Awards: FASB staff discussed the amendments in the proposed Accounting Standards Update, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest Awards and noted that the comment period closes July 10, 2023. PCC members noted that the proposed illustrative guidance will help to reduce diversity in practice and indicated support for the proposed transition requirements. Some PCC members, including the PCC Chair, emphasized the importance of communicating the amendments in the proposed Update to relevant stakeholders.
  • Accounting for and Disclosure of Software Costs: PCC members discussed certain elements of the single model being researched by the FASB staff that would apply to costs that a company incurs to acquire, internally develop, or modify software. Those elements include the probable threshold and related indicators, unit of account, costs incurred after the software project is substantially complete, and presentation and disclosure. Overall, PCC members were supportive of the single model. Several PCC members supported the probable threshold and related indicators. Some PCC members expressed concern with including compulsion as an indicator that supports the application of the probable threshold. PCC members discussed challenges with applying the single model in an agile environment, including the judgment involved in identifying the unit of account and determining when a project is substantially complete. Some PCC members stated that data conversion costs should be included in the costs eligible for capitalization.
  • Stock Compensation Disclosures (PCC Research Project): FASB staff and members of the PCC’s stock compensation disclosures working group summarized the working group’s continued outreach with private company stakeholders, including practitioners and users, on research related to whether disclosures differences are warranted for private companies. Working group members thanked the staff for its efforts and noted that outreach participants have provided the working group with helpful feedback to continue its research.
  • Definition of a Derivative: FASB staff summarized feedback received as part of the June 2021 Invitation to Comment, Agenda Consultation, and provided an overview of certain arrangements identified by stakeholders that generally meet the definition of a derivative (R&D funding arrangements, financial instruments with ESG-linked features, litigation funding arrangements, and certain variable consideration provisions in revenue arrangements). Several PCC members stated that the definition of a derivative is complex and, as a result, it can be difficult to evaluate whether an arrangement meets the definition. PCC members suggested solutions, including a derivative scope exception for arrangements that involve an entity’s performance. The PCC Chair noted that creating new scope exceptions for specific arrangements may necessitate additional standard setting in the future as new arrangements emerge.
  • Leases Implementation: PCC members discussed recent observations from the implementation of Topic 842, Leases, and the feedback received during the PCC forum held at the June 2023 AICPA ENGAGE conference. PCC members discussed materiality thresholds, related party leases, embedded leases, the short-term lease recognition exception, and disclosures. User PCC members noted that previous concerns about the effect Topic 842 would have on debt covenants and financial ratios generally did not materialize.
  • Other Business: The PCC will hold an interactive, town-hall style forum at the AICPA Peer Review Conference in August 2023. The FASB will hold its next semiannual webcast, IN FOCUS: FASB Update for Private Companies and Not-for-Profit Organizations, on December 11, 2023.
The next PCC meeting is scheduled for Monday, September 11, and Tuesday, September 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.