Private companies are starting to win the accounting exceptions and accommodations they have sought as the Financial Accounting Standards Board endorses three “alternative” accounting proposals put forth by its Private Company Council.

FASB plans to publish three proposed updates to accounting standards in late June that would give private companies exceptions to Generally Accepted Accounting Principles. The proposals would modify the accounting for intangible assets acquired in a business combination, goodwill, and certain types of interest rate swaps for private companies. FASB's decision to endorse the PCC proposals “represents significant progress in our joint efforts to address concerns about the complexity and relevance of certain standards for private companies that prepare GAAP-based financial statements,” said FASB Chairman Leslie F. Seidman.

The first proposal would give private companies a pass on the GAAP requirement to separately recognize certain intangible assets acquired in a business combination. Companies would be allowed to elect the alternative and then recognize only those intangible assets arising from contractual terms that can't be canceled, or those that arise as a result of other legal rights.

Another proposal would allow private companies to amortize or write down goodwill following a simplified model. Private companies would be allowed to test goodwill for impairment only when a triggering event occurs that would more likely than not reduce the value of a company below its carrying amount. Currently, GAAP requires testing at least annually. The proposal also would allow private companies to test for goodwill impairment at the company-wide level instead of the reporting unit level.

Finally, FASB will propose allowing private companies the option to use two simpler approaches to account for certain types of interest rate swaps that are undertaken for the purpose of converting variable-rate borrowing to fixed. FASB says the result under both approaches is a periodic income statement charge for interest that would be similar to what would be charged if the company had entered into fix-rate borrowing at the outset.

The PCC has not yet added to its agenda a plan to look for simplified accounting for uncertain tax positions, one of the issues that drove private-company accounting advocates to call for a new process to consider GAAP exceptions and modifications for private companies. Members of the council said they had not yet identified a specific practice issue that required the council's immediate attention.

In a separate but related move, the American Institute of Certified Public Accountants has introduced an even simpler accounting approach for private companies -- a new financial reporting framework for small and medium entities that are not required or don't find it necessary to report under GAAP. The new framework is meant to give Main Street business owners a way to report their financial information in an efficient, meaningful way without unnecessary complexity or cost.

“The framework was intended for owner-managed businesses not engaged in overly complicated transactions,” says Bob Durak, AICPA director of private company financial reporting. “We've found in trying to improve private company reporting that many small businesses need another option in accounting. They don't need GAAP, but cash-basis or tax-basis accounting wasn't sufficient for their purposes.”

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