The Private Company Council (PCC) recently met to discuss how accounting guidance and items on the Financial Accounting Standards Board’s technical agenda would affect private companies. Topics covered in the meeting included the definition of a public business entity, private company accounting alternative effective dates, uncertain tax positions, financial instrument classification and the presentation of debt issuance cost. Members of the PCC also discussed their project on conforming the existing definitions of a nonpublic entity to the definition issued in December 2013.

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Balance Sheet Classification of Debt
The FASB added balance sheet classification of debt
to its technical agenda in August 2014 as part of its
Simplification Initiative. In a Board Meeting earlier this
year, the FASB decided entities should classify a debt
as noncurrent if either of the following conditions is
present at the time of the balance sheet date:
1. The liability is contractually due to be settled more
than 12 months (or operating cycle, if longer) after
the balance sheet date.
2. The entity has a contractual right to defer
settlement more than 12 months (or operating
cycle, if longer) after the balance sheet date.
The PCC expressed concern about the project and the
potential changes it would cause for private companies
that renegotiate the terms of debt agreements
subsequent to year end. The project is still in its initial
deliberations stage, and the PCC recommended the
FASB continue its outreach to stakeholders before
issuing any proposed accounting changes.
Share-Based Payments
The FASB will soon release proposed accounting
changes to help improve share-based payment
accounting. An exposure draft is expected in the
second quarter of 2015. During its pre-drafting and
drafting process, the FASB has also been researching
some of the key issues private companies encounter
with share-based accounting. The FASB presented
some of its research findings at the meeting and
The Private Company Council (PCC) recently met to
discuss how accounting guidance and items on the
Financial Accounting Standards Board’s technical
agenda would affect private companies. Topics
covered in the meeting included the definition of a
public business entity, private company accounting
alternative effective dates, uncertain tax positions,
financial instrument classification and the presentation
of debt issuance cost. Members of the PCC also
discussed their project on conforming the existing
definitions of a nonpublic entity to the definition issued
in December 2013.
Definition of a Nonpublic Business Entity
The PCC discussed its project Issue 14-01 Definition
of a Public Business Entity – Phase II. The objective
of the project was to modify all existing definitions
of a public business entity or nonpublic business
entity to the new definition that the FASB is utilizing
prospectively for new accounting standards. Such
a change was expected to reduce complexity in
interpreting and applying U.S. GAAP. However, the
PCC decided that the challenges of conforming all
of the existing definitions could not be overcome by
the PCC at this time, and that the existing definitions
should remain until potentially amended by the FASB
at a later date.
April 2015
First Quarter Private Company Council Update

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plans to continue its outreach to determine whether
a private company accounting alternative based on
intrinsic value for all awards is warranted.
Uncertain Tax Positions
Concerns surfaced during the meeting about how
to account for uncertain tax positions. The AICPA
Financial Reporting Executive Committee Technical
Practice Aid (TPA) 5250.15, released in 2010,
establishes that nonpublic entities disclose tax years
open to investigation regardless of whether the entity
has unrecognized tax benefits. The PCC requested
that private entities only make disclosures when they
have uncertain tax positions.
Subsequent to the meeting, the AICPA deleted TPA
5250.15 in an effort to clarify when a nonpublic entity
should disclose the tax years remaining that are
subject to investigation.
Accounting for Financial Instruments
Progress is also being made on the classification and
measurement of financial instruments project. The
FASB plans to release a final accounting standard
related to the simplification of financial instrument
reporting in the second quarter of 2015. The update is
expectedtoallowprivatecompaniestouseadisclosure
exemption. Companies would not have to disclose
the fair value of financial instruments measured at
amortized cost. The FASB and the PCC discussed
if private companies would be allowed to early adopt
the disclosure exemption without early adopting the
other provisions of the accounting standard update.
Private Company Council Review
Unrelated to the meeting, the Board of Trustees of
the Financial Accounting Foundation is seeking input
from stakeholders about the PCC. The input is part
of an assessment of the PCC’s first three years of
operation. Interested parties can submit comments to
PCCReview@f-a-f.org. The deadline for comment is May
11, 2015.
Adoption of Private Company Accounting Alter-
natives
Recently members of the PCC have raised concerns about
the ability of a private company to adopt the accounting
alternatives after their effective date. As written the first
three private company alternatives are effective for the
first annual period beginning after December 15, 2014
(December 31, 2015 for calendar year entities), while
the fourth standard is effective upon the first qualifying
transaction after December 15, 2015. A private company
that does not elect to apply the accounting alternatives by
their effective date may not be able to elect the alternatives
in future years, because a change in accounting principle
after the effective date of an update is required to be
preferable. In some instances a private company may not
desire to adopt the accounting alternatives at the effective
date, for instance if they have plans to become a public
business entity, but may desire to adopt the alternatives
at a later date. The FASB and PCC intend to add a topic
to a future agenda considering allowing the election of
the alternatives after the effective date.
For More Information
MHM will keep you up-to-date about emerging issues
affecting private companies. If you have specific
questions, comments or concerns, please share them
with your MHM service professional.

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.