Private Company GAAP–PCC Alternatives Developed in 2014

• Author: Paul Munter,Oscar J. Holzmann
• Published date: 01 May 2015
• DOI: http://doi.org/10.1002/jcaf.22040
• Date: 01 May 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22040

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FASB

Oscar J. Holzmann and Paul Munter

Private Company GAAP–PCC

Alternatives Developed in 2014

The Private Company Council

(PCC) was established by the

Financial Accounting Foun-

dation to identify potential

modifications to U.S. generally

accepted accounting principles

(GAAP) for private companies

that would result in less com-

plexity for private company

preparers while still providing

relevant and timely informa-

tion to their financial statement

users. The PCC also is charged

with advising the FASB on pri-

vate company matters on active

FASB projects.

The PCC’s decisions on

potential modifications and

exceptions to U.S. GAAP are

subject to endorsement by the

FASB. Once endorsed by the

FASB, they become available

for use by private companies to

adopt and still issue financial

statements in accordance with

U.S. GAAP, albeit with dif-

ferences from the accounting

policies available to public com-

panies.

The PCC, working with

the FASB, has developed a pri-

vate company decision-making

framework to help it in deter-

mining when modifications or

exceptions would be appropriate

for private companies. Addition-

ally, to better define the scope of

companies to which the alterna-

tives are available, the FASB and

PCC developed a new defini-

tion of a public business entity

(which would be ineligible to use

private company alternatives).

Based on their efforts to

develop a private company

decision-making framework and

to better distinguish public from

private companies, the PCC has

developed four new Account-

ing Standards Updates (ASUs)

that provide accounting alterna-

tives that are available to at least

some private companies but are

unavailable to public companies.

PRIVATE COMPANY DECISION-

MAKING FRAMEWORK

The FASB and PCC issued

the Framework late in 2013.

1

The Framework is intended to

serve as a guide for the FASB

and PCC in determining when

accounting alternatives should

be considered for private compa-

nies. It is not, however, intended

to replace the FASB’s Concep-

tual Framework of Financial

Reporting. The Framework

addresses factors that differen-

tiate private companies from

public companies and the spe-

cific areas where recognition

and measurement, disclosure,

presentation, effective date, and

transition requirements might

differ for private and public

companies.

In developing the Frame-

work, the FASB and PCC

obtained input from a variety

of private company stakehold-

ers including preparers, audi-

tors, and users. The Framework

identifies the following five

significant factors that differenti-

ate financial reporting consid-

erations of private companies

from public companies:

1. Number of users and

access to management

(generally not to be con-

sidered for recognition and

measurement alternatives);

2. Investment strategies of

primary users;

3. Ownership and capital

structure;

4. Accounting resources; and

5. Learning about new finan-

cial reporting guidance.