September 22, 2020
The Private Company Council (PCC) met on Tuesday, September 22, 2020. Below is a brief summary of issues addressed by the PCC at the meeting:
- Summary of September 21, 2020 Meeting with the AICPA’s Technical Issues Committee (TIC): PCC members reported on the issues discussed with TIC during their annual PCC-TIC Liaison meeting. PCC members and FASB Board members discussed the challenges private companies are having in applying the guidance on goodwill impairment in the current environment, including in the identification and evaluation of triggering events. PCC members indicated that, at a minimum, private companies could benefit from educational materials covering this issue, including those currently being developed by the FASB staff. They also recommended that the Board consider simplifying that guidance for private companies. PCC members also briefly highlighted the complexities in accounting for the Small Business Administration Paycheck Protection Program loans.
- Current Issues in Financial Reporting: PCC and Board members briefly discussed practice issues arising from the current business environment under the COVID-19 pandemic. Topics discussed included a borrower’s accounting for debt modifications and troubled debt restructurings, interim impairment testing of nonfinancial assets, the Paycheck Protection Program, and accounting for inventory impairment in times of longer turnover. PCC members noted that private companies are struggling to identify practice aids and research guidance relevant to COVID-19 accounting issues. The PCC discussed how the FASB could improve stakeholder awareness of educational resources.
FASB resources related to the COVID-19 pandemic can be found here. Furthermore, the Board emphasized that it continues to monitor conditions and stands ready to support private companies encountering technical accounting issues. Board members encouraged PCC members and other stakeholders to continue providing feedback.
- Implementation Issues—Revenue: FASB staff provided the PCC with an overview of the Revenue Recognition—Practical Expedient for Private Company Franchisors project and the recently issued proposed Accounting Standards Update, Franchisors—Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient. The project seeks to address the difficulty in determining whether pre-opening services are distinct from the franchise license. The proposed practical expedient is aimed at simplifying the performance obligation analysis. The proposed Update was issued on September 21, 2020, with a 45-day comment period, ending November 5, 2020. The PCC supported the proposed Accounting Standards Update.
PCC members also discussed the effect of the adoption of Topic 606, Revenue from Contracts with Customers, on Common Interest Realty Associations (CIRAs) and, in particular, on accounting for reserve assessments. PCC members and FASB staff noted that prior industry-specific guidance used by the CIRA industry has been superseded and therefore is no longer applicable.
- Implementation Issues—Leases: FASB staff provided the PCC with an overview of the Leases: Targeted Improvements project that was added to the Board’s technical agenda on July 29, 2020. That project provides targeted improvements related to:
1. Sales-type leases with substantial variable lease payments
2. Remeasurement of lease payments based on a reference index or rate
3. Reduction of scope in a lease contract.
The staff expects that a proposed Accounting Standards Update will be issued in the fourth quarter of 2020.
FASB staff also provided a brief report of the Leases Roundtable held on September 18, 2020. Topics of discussion included lessee application of the guidance related to the rate implicit in the lease and to the incremental borrowing rate, lease modification guidance, embedded leases, and lessee allocation of fixed and variable payments between lease and nonlease components. As part of its post-implementation review efforts, the staff will summarize the feedback and develop a plan for the Board to consider.
- Profits Interests and Their Interrelationship with Partnership Accounting: FASB staff and this issue’s working group members provided the PCC with an update on the formation of the working group and discussed its first meeting. The working group’s objectives are to assist with outreach, identify practice issues on profits interests and partnership accounting, identify a scope for a potential PCC project on profits interests, and ultimately identify potential solutions to the practice issues. The working group will conduct outreach with specialists to better understand legal, tax, and valuation issues associated with profits interests.
- Disclosure Framework—Disclosure Review: Income Taxes: FASB staff provided a summary of comments on certain proposed amendments that are relevant to nonpublic business entities that the Board received in response to the proposed Accounting Standards Update (Revised), Income Taxes (Topic 740): Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes. PCC members provided feedback on the proposed disclosures and potential alternative disclosures relating to disaggregated tax information and carryforwards.
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.