Private Company Reporting

In December 2013, the Financial Accounting Standards Board (FASB) and the Private Company Council (PCC) issued a private company decision-making framework to use in determining when to provide alternative recognition, measurement, disclosure, display, effective date or transition guidance for private companies reporting under U.S. generally accepted accounting principles (GAAP). This guide augments the existing conceptual framework for financial reporting to help FASB and the PCC make user-relevant and cost-beneficial accounting alternative decisions for private companies.

Also that month, FASB issued an Accounting Standards Update (ASU) to define what constitutes a public business entity (PBE). Understanding the definition of a PBE is critical in determining which entities may apply private company accounting alternatives.  The new PBE definition is broader than previous criteria, so more companies will be considered a PBE.  The PCC decided not to amend the existing definitions of a nonpublic entity; meaning, the existing definitions will remain in the FASB Codification until potentially amended at a later date by the FASB. Our previous article, Considering Private Company Alternatives, covers the new definition of a PBE, along with items companies should consider before deciding whether to elect the private company accounting alternatives. Our article, Are You a Public Business Entity? Why All Companies Need to Know, addresses why all companies need to understand whether they meet the definition of a PBE to comply with transition, effective date and disclosure requirements included in ASUs applicable to all entities issued since January 2014.

Since completing the guide, FASB has issued four accounting alternatives intended to reduce the cost and complexity of financial reporting for private companies, summarized in the table below. In March, 2016, FASB issued new guidance removing the effective dates of these standards, relieving concerns about performing the required assessment of preferability when first electing a private company alternative. Any accounting policy change after a company initially elects an alternative still requires a preferability assessment. The new guidance also indefinitely extends the transition guidance included in these private company alternatives. Refer to BKD’s article FASB Finalizes Effective Date Guidance for Private Companies.

Accounting Standards Update


Transition Method

ASU No. 2014-02, Intangibles—Goodwill and Other:  Accounting for Goodwill

Allows a private company to amortize goodwill on a straight-line basis over a period of 10 years, or less if the company demonstrates that another useful life is more appropriate. Goodwill would only be tested for impairment when a triggering event occurs. When goodwill impairment testing is necessary, companies would apply a simplified one-step impairment model. Read more


ASU No. 2014-03, Derivatives and Hedging:  Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach

Provides private companies (other than financial institutions) the option to use a simplified hedge accounting approach to account for interest rate swaps that are entered into for the purpose of converting variable-rate interest payments to fixed-rate payments. Read more

Option of modified retrospective or full retrospective

ASU No. 2014-07, Consolidation:  Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements

Allows a private company to elect (when certain conditions exist) not to apply variable interest entity guidance to a lessor under common control. Read more


ASU No. 2014-18, Business Combinations:  Accounting for Identifiable Intangible Assets in a Business Combination

Allows a private company to simplify its accounting by recognizing fewer intangible assets in a business combination. Read more

Applied to all in-scope transactions entered into after the effective date.

Other Projects

In December, 2015, the PCC voted to add a project to its agenda addressing concerns with the application of Variable Interest Entity (VIE) guidance to entities under common control not already addressed in FASB Accounting Standards Update No. 2014-07, Consolidation (Topic 810):  Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (PCC Issue No. 15-02). The PCC directed the FASB staff to work with private company stakeholders to develop examples to help clarify application of VIE guidance to such situations. The PCC decided not to add a project to its agenda related to determining whether consolidating statements should be required when sibling entities under common control are consolidated as a result of applying VIE guidance.

At its September 25, 2015, meeting, the PCC members identified the following topics as top priorities for the FASB to consider:

  1. Other comprehensive income
  2. Consolidations (BKD resource:  Update to Consolidation Guidelines)
  3. Liabilities with characteristics of equity
  4. Improving cash flow classification (BKD resource:  Clarification Proposed on Classification of Certain Cash Receipts & Payments)
  5. Financial statement presentation

The PCC also provided input on private company issues related to intangible assets and the following FASB projects:

  • Accounting for Financial Instruments—Hedge Accounting
  • Disclosure Framework (with specific emphasis on possible changes to defined benefit plan and inventory disclosures)
  • Liabilities vs. Equity—Targeted Improvements:  Down Rounds

Jerry Henderson

National Practice Leader
Manufacturing & Distribution

Donald Hutson Jr

National Practice Leader
Financial Services

Tondeé Lutterman

National Practice Leader
Not-for-Profit & Government

Eddie Marmouget

National Practice Leader
Health Care

Tim Wilson

National Practice Leader
Construction & Real Estate
BKD LinkedIn BKD Twitter BKD Youtube BKD Google Plus