Little GAAP: Private Company Alternatives to GAAP

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15 Apr Little GAAP: Private Company Alternatives to GAAP

For years, many private businesses have complained that the FASB catered to large, public companies. In 2012, the Private Company Council (established by the FASB’s parent organization) began recommending ways to adapt the rules to fit the simpler financial reporting needs of small business stakeholders.

Making life easier

In 2014, the FASB issued four alternative reporting options:

  1. Accounting Standards Update (ASU) No. 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill. It allows private companies to elect to amortize goodwill over a period not to exceed 10 years, rather than test it annually for impairment.
  2. ASU 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps — Simplified Hedge Accounting Approach. It gives non-financial-institution private companies an easier form of hedge accounting when they use simple interest rate swaps to secure fixed-rate loans.
  3. ASU 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. It simplifies the consolidation reporting requirements of lessors in certain private company leasing transactions.
  4. ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. It exempts private companies from recognizing certain hard-to-value intangible assets — such as noncompetes and certain customer-related intangibles — when they combine with another company.

Switching over

In March, the FASB published ASU 2016-03, Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance. It removes the effective dates from the reporting alternatives.

It also exempts private companies from having to make a ‘preferability assessment.’ Under the previous rules, you were required to assess whether an alternative method was preferable to your existing accounting policy before you could adopt an alternative after its effective date.

Discuss your options

We can answer your questions about how to make financial reporting simpler for your private business without compromising reliability or relevance.

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