April 22, 2022
The Private Company Council (PCC) met on Thursday, April 21 and Friday, April 22, 2022. Below is a summary of topics addressed by the PCC at the meeting:
- Profits Interests and Their Interrelationship with Partnership Accounting: FASB staff summarized past research (including outreach) and provided its analysis and recommendations on the issue of determining the appropriate scope of guidance for profits interests awards (that is, Topic 710, Compensation—General, or Topic 718, Compensation—Stock Compensation). The staff also highlighted how certain potential solutions might affect public business entities. PCC members recommended that the FASB add a project to its technical agenda to address the issue of determining the appropriate scope of guidance for profits interests awards. They noted that diversity in practice and cost and complexity result from the lack of authoritative guidance that explicitly addresses profits interests, and that the issue potentially affects both public business entities and private companies. Overall, PCC members supported developing illustrative examples to include in the Codification and potentially providing additional educational materials.
- Leases Implementation Issues: PCC members discussed challenges private companies are facing when adopting Topic 842, Leases, including evaluating individually immaterial lease agreements that may or may not be material in the aggregate, allocating costs to lease and non-lease components, and addressing diversity in practice in the accounting for contingent lease incentives. FASB staff and PCC members also discussed (a) whether private companies are expected to elect the practical expedient that allows lessees to combine lease and non-lease components and account for the combined component as a single lease component, (b) capitalization thresholds, and (c) the use of leasing software by private companies.
- Credit Losses: FASB staff provided an overview of Accounting Standards Update No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which was issued on March 31, 2022. PCC members noted that the disclosure requirements provide decision-useful information to investors. The staff also provided background on the Board’s decision not to further defer the effective date for nonpublic entities to apply Topic 326, Financial Instruments—Credit Losses. PCC members shared their observations on nonpublic entities’ readiness to adopt the current expected credit losses guidance.
- Current Issues in Financial Reporting: PCC members discussed practice issues arising from the current business environment. Topics discussed included disclosures about the Paycheck Protection Program and the accounting and reporting for employee retention credits included in the Coronavirus, Aid, Relief, and Economic Security (CARES) Act and subsequent COVID-19-related legislation.
- FASB Agenda Consultation: FASB staff summarized the Board’s discussions and decisions made so far resulting from stakeholder feedback received in response to the June 2021 FASB Invitation to Comment, Agenda Consultation (the Agenda Consultation ITC). FASB staff updated the PCC on changes made to the research agenda and the technical agenda and updated the PCC on next steps. PCC members asked about the Board’s recent removal of the Distinguishing Liabilities from Equity Phase 2 project from the technical agenda, citing continued challenges for private companies in applying the liabilities and equity guidance.
- Accounting for Government Grants, Invitation to Comment: FASB staff summarized the feedback received on the Agenda Consultation ITC on the accounting for government grants and the objective of the recently added FASB research project. The staff plans to issue an ITC to solicit feedback on whether certain requirements in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, represent a workable solution for improving the accounting for government grants under US GAAP. PCC members provided feedback on potential areas for the FASB staff to research, including investor preferability for gross versus net presentation, clarifying the scope of government grants, and the recognition and measurement of government grants.
- Accounting for and Disclosure of Intangibles: FASB staff summarized this FASB research project (which includes software costs, internally developed intangibles, and research and development), existing guidance, feedback received on the Agenda Consultation ITC, and next steps. PCC members expressed support for this research project, citing the increased prevalence of intangible assets in private companies and the differences in the accounting treatment of internally generated intangibles and of acquired intangibles. PCC members also noted the complexity and undue costs associated with the accounting for software costs because of the evolving nature of software.
- Accounting for Financial Instruments with Environmental, Social, and Governance (ESG)-Linked Features and Regulatory Credits: FASB staff summarized the background, feedback received on the Agenda Consultation ITC, and next steps of the recently added FASB research project. PCC members discussed their experience with financial instruments with ESG-linked features, noting that it is an emerging area that could become more prevalent for private companies. PCC members encouraged the Board to monitor how ESG-related activities could affect financial reporting.
- Reference Rate Reform—Deferral of the Sunset Date of Topic 848: FASB staff provided an update on the amendments in the proposed Accounting Standards Update, Reference Rate Reform (Topic 848) and Derivatives and Hedging (Topic 815): Deferral of the Sunset Date of Topic 848 and Amendments to the Definition of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate. The PCC Chair noted that some of her private company clients are starting to transition away from LIBOR and expressed support for the amendments in the proposed Update.
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.