December 17, 2021
The Private Company Council (PCC) met on Friday, December 17, 2021. Below is a brief summary of topics addressed by the PCC at the meeting:
- Profits Interests and Their Interrelationship with Partnership Accounting: FASB staff updated the PCC on the comprehensive research (including outreach) conducted by the staff and Working Group on the issue of determining the appropriate scope of guidance for profits interest awards (such as Topic 710, Compensation—General, or Topic 718, Compensation—Stock Compensation). PCC members discussed the research findings, observations on current diversity in practice, and the scope and objective of a potential project. PCC members also discussed what form potential solutions might take if a project were added to the PCC’s technical agenda. FASB staff will provide an analysis of the FASB agenda criteria for discussion at future PCC technical agenda consultation group and PCC meetings. FASB staff also will present a summary of the research and outreach performed on other issues (implied performance conditions, classification as liabilities or equity, and measurement) at a future meeting.
- FASB Agenda Consultation Research Project: FASB staff updated the PCC on private-company-specific feedback received in response to the June 2021 FASB Invitation to Comment, Agenda Consultation, which had a comment deadline of September 22, 2021. PCC members discussed specific topics, including disaggregation of financial reporting information, presentation of the statement of cash flows, reduction of unnecessary complexity in certain areas of GAAP, such as debt modifications, distinguishing liabilities from equity, and consolidation, and accounting for certain emerging transactions, such as environmental, social, and governance related transactions, digital assets, intangibles, software costs, and financial key performance indicators. Throughout the various topical discussions, PCC members encouraged the Board to continue to simplify language in the Financial Accounting Standards Codification® and continue to consider the Private Company Decision-Making Framework and attributes specific to private companies when considering potential changes to the FASB’s technical agenda.
- Share-Based Payment Disclosures: The PCC discussed the disclosures required by Topic 718, Compensation—Stock Compensation. PCC members shared their views on areas of potential private company relief from the stock compensation disclosure requirements and the decision-usefulness of the required disclosures for private company financial statement users. The PCC Chair noted that the PCC will consider its discussion and determine whether it wants to move forward on further evaluating stock compensation disclosures, including conducting user outreach.
- Joint Venture Formations: FASB staff updated the PCC on recent project activity including the measurement and recognition alternatives considered by the Board to account for joint venture formations in their separate financial statements. FASB staff summarized significant tentative Board decisions, including that a joint venture would adopt a new basis of accounting upon formation, which would generally result in the joint venture recognizing and initially measuring its assets and liabilities at fair value. FASB staff also provided details on the application of a new basis of accounting by a newly formed joint venture and noted that the next steps of the project include distributing a draft of a proposed Accounting Standards Update for external review, summarizing external review comments, addressing remaining sweep issues, and asking the Board for permission to ballot a proposed Update. A PCC member indicated support for the Board’s tentative decisions.
- Leases: FASB staff updated the PCC on a recent Board decision related to the private company effective date of Topic 842, Leases. Since issuing Accounting Standards Update No. 2016-02, Leases (Topic 842), in February 2016, the FASB has issued two effective date deferrals for certain entities: one in June 2020 and one in November 2019. In November 2021, the Board decided not to provide a third effective date deferral of Topic 842 for entities within the scope of paragraph 842-10-65-1(b) (generally private companies and certain not-for-profit organizations). FASB staff also reminded stakeholders that the staff is available for implementation questions through the technical inquiry system on the FASB website. PCC members encouraged private companies to begin their leases implementation and suggested that the FASB hold a webcast in 2022 focused on leases implementation targeted to private companies.
- Current Issues in Financial Reporting: The PCC Chair noted that while no new financial reporting issues are currently being raised by PCC members resulting from the current business environment under the COVID-19 pandemic, stakeholders are encouraged to communicate new issues to the PCC.
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.