FASB Removes Effective Dates for Private Company Accounting Alternatives

Published on March 23, 2016

The Financial Accounting Standards Board has issued an accounting standards update for private companies that opt to apply private company accounting alternatives, removing the effective dates for four of the alternatives. 

They include:

  • ASU No. 2014-02, Intangibles—Goodwill and Other (Topic 350)
  • ASU No. 2014-03, Derivatives and Hedging (Topic 815) 
  • ASU No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
  • ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination

Previously, if a private company elected to adopt an accounting alternative after its effective date, it had to assess whether the accounting alternative was preferable to its accounting policy at that time. The new accounting standards update permits a private company to forgo the preferability assessment the first time it elects a private company accounting alternative.

The recommendations for the private company alternatives originally came from the Private Company Council (PCC), FASB's sister organization overseen by the Financial Accounting Foundation, which has been tasked with providing the perspective of privately held companies in the accounting standard-setting process to make the standards less complicated.

The PCC added the issue of removing the effective dates to its agenda in response to some concerns raised by stakeholders at private companies about the required assessment of preferability when electing a private company accounting alternative for the first time after its effective date. They were concerned about scenarios in which it might not be optimal for a private company to elect a private company accounting alternative by its effective date because of the facts and circumstances of that company or because that company was unaware of that private company accounting alternative until after its effective date.

(Source:  AccountingToday - Daily Edition - March 8, 2016)