June 23 and 24, 2022

The Private Company Council (PCC) met on Thursday, June 23 and Friday, June 24, 2022. Below is a summary of topics addressed by the PCC at the meeting:
  • Disaggregation—Income Statement Expenses: FASB staff provided an overview of the feedback on income statement expense disaggregation received in response to the 2021 FASB Invitation to Comment, Agenda Consultation (the Agenda Consultation ITC); the background on the agenda project; and the feedback on income statement expense disaggregation received during prior PCC meetings. FASB staff solicited feedback from PCC members on private company practices on income statement presentation; the need for further disaggregation of cost of sales and selling, general, and administrative expenses in private company financial statements; and potential disaggregation principles and approaches. PCC members were generally supportive of exploring further expense disaggregation but expressed varying views on the most appropriate approach and factors to consider. PCC members who are users discussed the benefits of incremental disaggregation, including the ability to better understand an entity’s operating leverage, predict future cash flows, and distinguish between an entity’s periodic expenses and costs incurred as an investment in the business. PCC members who are preparers and those who are practitioners raised concerns about a disaggregation principle that may be costly to implement and whether the benefits to users would exceed those costs.
  • Accounting for and Disclosure of Digital Assets: FASB staff summarized the Board’s recent decision to add a project on digital assets to its technical agenda, the project’s background and scope, and issues related to current practices for digital asset accounting. PCC members noted that this is a growing area of interest for private company preparers and practitioners. Specifically, PCC members discussed the need for guidance on the recognition, measurement, and balance sheet classification of digital assets. PCC members also discussed the enhanced internal controls needed to audit digital assets, the volatility inherent in using the impairment model, and the accounting for digital assets used to settle receivables.
  • Leases—Implementation Issues: A PCC member who is a preparer highlighted the topics discussed at the Leases Implementation Best Practices session of the June 2022 AICPA ENGAGE conference. Those topics included embedded leases, capitalization thresholds, discount rates, lease and nonlease components, and related party leases. That member also discussed the effect of applying Topic 842, Leases, on internal controls and the use of software to comply with that Topic. PCC members highlighted related party leases as an area that received significant attention during both the Leases Implementation Best Practices session and the PCC Town Hall meeting at the same conference. PCC members noted that many related party leases are between entities under common control, some of which have written terms that may not be at arm’s length and others that are unwritten. PCC members emphasized that those factors make it difficult for private companies to determine the legally enforceable terms of a related party arrangement for purposes of applying Topic 842. PCC members discussed ways in which they (or the FASB) could assist private company stakeholders in applying the related party leases requirements in Topic 842 through either educational materials (such as an FASB Staff Q&A) or Codification improvements. The PCC also discussed performing outreach with private company stakeholders to determine whether the issue with applying the Topic 842 related party leases requirements is limited to common control arrangements or includes other related party arrangements.
  • Stock Compensation Disclosures: FASB staff provided the PCC with an update on the formation of a working group and noted that the initial working group meeting is scheduled for the end of June. The working group comprises three PCC members and a member of the AICPA’s Private Companies Practices Section Technical Issues Committee. The PCC Chair acknowledged recent feedback received from some private company stakeholders that stock compensation is not an area that broadly affects all private companies and indicated that the PCC will be cognizant of balancing its resources in this area with other broader issues facing private companies.
  • Identifiable Intangible Assets and Subsequent Accounting for Goodwill: FASB staff highlighted the Board’s recent decision to deprioritize and remove the project from its technical agenda and noted the Board’s continued interest in monitoring the IASB’s Goodwill and Impairment project.
  • Agenda Consultation: FASB staff updated the PCC on the Board’s recent discussions and decisions in response to stakeholder feedback received on the Agenda Consultation ITC, the resulting changes to the research and technical agendas, and next steps. The FASB Chair explained the objective of the newly added research project, Financial Key Performance Indicators for Business Entities, and its interdependency with the Disaggregation—Income Statement Expenses project. PCC members also asked about the Board’s recent removal of the Leases (Topic 842): Lease Modifications project from the technical agenda. FASB staff explained that stakeholder feedback had indicated that there was not a pervasive need to amend the guidance at this time. Additionally, because Topic 842 is currently being implemented by nonpublic entities, the FASB did not want to propose amendments at this time. FASB staff also noted that outreach will continue in this area in connection with post-implementation review activities.
  • Accounting for Environmental Credit Programs: FASB staff summarized this FASB technical agenda project, feedback received on the Agenda Consultation ITC, recent Board decisions made, and next steps. PCC members noted that while private companies enter into certain environmental, social, and governance (ESG)-related transactions, PCC members have limited experience to date with environmental credit programs.
  • EITF Issue No. 21-A, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”: FASB staff provided the PCC with an overview of the project, the consensus-for-exposure reached by the EITF, and next steps. The PCC member who observes EITF meetings provided additional details about certain aspects of the project (for example, transition method). In response to PCC member questions, the staff clarified that the project focuses on investments in certain tax credit structures by tax equity investors and not on the accounting by project sponsors. PCC members expressed support for the consensus-for-exposure reached by the EITF.
  • Other Business: The PCC Chair highlighted an issue on the accounting for increasing freight costs related to inventory and whether those freight costs should be expensed or capitalized. The PCC Chair referenced guidance that exists in Topic 330, Inventory, to assist private company stakeholders in accounting for such freight costs.
The next PCC meeting is scheduled for Thursday, September 22, and Friday, September 23, 2022.

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.