A recent update from the Financial Accounting Standards Board (FASB) allows the first time adoption of the four private company accounting alternatives without having to perform a preferability assessment. Recent changes related to accounting for goodwill, interest rate swaps, common control leasing arrangements and intangible assets in a business combination provided accounting alternatives for private companies. The first three private company accounting alternatives were effective for annual periods beginning after December 15, 2014, while the fourth alternative was effective for annual periods beginning after December 15, 2015.

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using a retrospective application, unless impractical.
Retrospective application requires prior periods to
be presented as if the accounting principle had been
applied to all prior periods in the financial statements
with a cumulative catch-up to the opening balance of
equity.
With the issuance of Accounting Standards Update
(ASU) 2016-03, the FASB clarifies the effective
date and transition guidance for private companies.
The ASU removes the effective dates for all four
accounting alternatives. In doing so, it allows private
companies to perform a first time election of any of
the accounting alternatives in future periods without
assessing preferability.
Private Company Accounting Electives: A
Recap
Goodwill: ASU 2014-02 Intangibles - Goodwill and
Other (Topic 350): Accounting for Goodwill permits
private companies an election to amortize goodwill
and only test goodwill for impairment when a triggering
event occurs. The amortization of goodwill is done on
a straight-line basis with a period not to exceed 10
years.
The effective date for ASU 2014-02 required the
accounting alternative to be adopted for a calendar
year entity’s December 31, 2015, financial statements
in order to avoid the requirements of a preferability
assessment. ASU 2016-03 will allow first time adoption
of the accounting alternative for private companies
in any future period without having to assess for
A recent update from the Financial Accounting
Standards Board (FASB) allows the first time adoption
of the four private company accounting alternatives
without having to perform a preferability assessment.
Recent changes related to accounting for goodwill,
interest rate swaps, common control leasing
arrangements and intangible assets in a business
combination provided accounting alternatives for
private companies. The first three private company
accounting alternatives were effective for annual
periods beginning after December 15, 2014, while
the fourth alternative was effective for annual periods
beginning after December 15, 2015.
Under U.S. Generally Accepted Accounting Principles
(US GAAP), the adoption of a new accounting
principle after the effective date of the accounting
standard update requires an evaluation of whether
the newly adopted accounting principle is preferable.
Preferability is not strictly defined and requires a
subjective evaluation of whether financial reporting is
improved. If adoption of a new accounting principle
is justified based on preferability, US GAAP also
requires extensive disclosures related to the adoption
of the new principle and that the adoption be done
March 2016
Private Companies Can Now Bypass Preferability Assessment for Qualifying
Adoptions of Accounting Alternatives

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preferability. In addition, ASU 2016-03 requires that
if adopted, the amortization of goodwill be applied
prospectively from the beginning of the annual period
of adoption.
Interest rate swap: ASU 2014-03, Derivatives
and Hedging (Topic 815) Accounting for Certain
Receive-Variable, Pay-Fixed Interest Rate Swaps—
Simplified Hedge Accounting Approach allows private
companies to adopt a simplified hedging approach
for qualifying swaps that assumes no ineffectiveness.
Private companies also have the option to measure
the swap at settlement value rather than fair value.
The application of hedge accounting is performed on
a swap-by-swap basis; therefore, as originally issued,
this accounting alternative can be applied to individual
swaps in the future periods after the effective date
of the original update without an assessment of
preferability.
The FASB decided to eliminate the effective date in
ASU 2016-03 in order to effect a change to transition
provisions contained in ASU 2014-03. Previously,
private companies that elected the accounting
alternative subsequent to the effective date could not
apply the simplified approach to existing swaps. ASU
2016-03 allows private companies on the first time
usage of the simplified hedging approach the ability
to apply the accounting alternative to swaps that were
in existence at the time of adoption.
Common control leasing arrangements: ASU
2014-07, Applying Variable Interest Entity Guidance
to Common Control Leasing Arrangements permits
private companies to elect out of applying variable
interest entity accounting for qualifying commonly
controlled leasing arrangements. To be eligible for
the alternative, private companies must demonstrate
that a leasing arrangement exists with a lessor entity
under common control with the private company,
substantially all the activity between the two entities
relates to the lease arrangement and if the private
company guarantees or provides collateral for the
lessee’s debt, then the principal amount of the
lessee’s obligation is less than the value of the leased
asset at the inception of the guarantee or collateral
arrangement.
ASU 2014-17 was effective for the December 31, 2015,
financial statements of a calendar year entity. ASU
2016-03 eliminates the effective date and permits the
election to adopt the accounting alternative without
an assessment of preferability in any future period.
The accounting alternative for common control
leasing arrangements is still required to be adopted
retrospectively.
Identifiable intangible assets: In ASU 2014-18,
Business Combinations (Topic 805): Accounting
for Identifiable Intangible Assets in a Business
Combination, private companies were given an
alternative to not record certain intangible assets
that would otherwise be required to be recorded at
fair value when the acquisition method in Topic 805
is applied. The accounting alternative was effective
for calendar year entities in their December 31, 2016,
financial statements, with early adoption permitted.
The effective date is eliminated by ASU 2016-03.
Therefore, this accounting alternative may be elected
for the first time in any period without assessing
preferability. Adoption of the accounting alternative in
ASU 2014-18 will still be done prospectively and will
require the adoption of the accounting alternative for
the amortization of goodwill.

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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.
Applicability
All entities that are eligible for the private company
alternatives outlined in this update will be able to use
the guidance in ASU 2016-03 effectively immediately.
For More Information
If you specific comments, questions or concerns
about the preferability accounting standards update,
please share them with Mark Winiarski or the MHM’s
Professional Standards Group. Mark can be reached
at 816.945.5614 or mwiniarski@cbiz.com.