Steven Siefert's presentation to the Wisconsin Chapter of the American Society of Appraisers on ASC 805 and ASC 350 Changes for Private Companies.This presentation covers PCC and FASB changes to GAAP pertaining to business combinations and impairment testing for privately-held companies.

1. Baker Tilly refers to Baker Tilly Virchow Krause, LLP,
an independently owned and managed member of Baker Tilly International.
ASC 805 and ASC 350 Changes for Private
Companies
Steven J. Siefert, CFA, ASA-BV/IA

2. Baker Tilly Virchow Krause, LLP
Founded in 1931, Baker Tilly Virchow Krause,
LLP is one of the top 12 largest accounting and
advisory firms in the U.S.
Baker Tilly Virchow Krause, LLP employs
approximately 2,500 professionals across 29
cities in the US with annual revenues of
approximately $475 million.
Baker Tilly Virchow Krause is an independent
member of Baker Tilly International, the eighth
largest accountancy and business advisory
network of independent members.
2

3. Steven J. Siefert, CFA, ASA-BV/IA Bio
Financial and Valuation Manager for Baker
Tilly Virchow Krause, LLP’s Milwaukee office.
Performs a variety of business valuation
engagements for a variety of purposes such as
financial reporting, gift and estate tax, S
corporation elections, etc.
3

4. Overview
In recent years, there has been a push for
reduced complexity (cost) with audited
financial statements for private companies.
One significant burden for private companies is
accounting related to purchase transactions.
Before the creation of the private company
council, no difference in GAAP requirements
for public and private companies.
4

5. History of Private Company Council
In 2006, FASB created the PCFRC in an effort
to improve ability of incorporating views of
private company constituents in the standard-
setting process.
In 2009, the FAF board of Trustees did a
“listening tour” where it met with constituents.
Big concern was the cost and complexity of
standards for nonpublic entities. Key concern
was no exceptions or modifications to US
GAAP for private companies.
5

6. History of Private Company Council (Con’t)
In December 2009, the AICPA, the FAF, parent
of FASB, and the NASBA established a blue-
ribbon panel to address how accounting
standards can best meet the users of U.S.
private company financial statements.
During May 2012, FASB approved the
establishment of the Private Company Council
(“PCC”), a new body to improve the process of
setting accounting standards for private
companies.
6

7. How Accounting Standard Updates Are
Determined
PCC and FASB work jointly to mutually agree
on a set of criteria to decide whether and when
alternatives within GAAP are warranted for
private companies.
Based on the criteria, the PCC reviews and
proposes alternatives within U.S. GAAP to
address needs of users of private company
financial statements.
7

8. How Accounting Standard Updates Are
Determined (Con’t)
First, PCC will conduct a review of existing
GAAP and identify standards to require
consideration.
PCC will vote on proposed alternatives, which
must be approved by a two-thirds vote of all
PCC members.
Proposed modifications or exceptions to GAAP
approved by the PCC are submitted to FASB
for a decision on endorsement. If endorsed by
majority of FASB members, the proposed
modifications are exposed for public comment.
8

9. How Accounting Standard Updates Are
Determined (Con’t)
Following receipt of public comment, PCC
considers changes to the original decision and
takes a final vote. If approved, the final
decision then will be submitted to the FASB for
a final decision on endorsement.
If FASB does not endorse a proposed or final
modification or exception, the FASB chair will
provide feedback on the reason for non-
endorsement and possible changes the PCC
could consider to receive FASB endorsement.
9

10. How Adoption Works
Companies have the option of elections of the
alternatives under GAAP. Companies are
allowed, but not required, to make the
elections.
This is critical for companies that plan to go
public as there is no exception for SEC filing
companies.
Due to costs, if a company plans to go public, it
is generally best not to elect the private
company exemptions.
10

11. ASU Updates
ASU 2014-03 – Accounting for Certain Swaps
ASU 2014-02 – Accounting for Goodwill
ASU 2014-07 – Variable Interest Entities
Under Common Ownership
ASU 2014-18 – Accounting for Intangible
Assets in a Business Combination
11

12. ASC 350
ASC 350 refers to indefinite lived asset
impairment testing. Generally, ASC 350 is
associated with goodwill impairment testing.
Under GAAP, companies are required to test
for goodwill impairment at least annually, or
more frequently when certain conditions exist.
12

13. ASC 350 (Con’t)
Goodwill impairment under ASC 350 is
estimated in a two step process:
1) Determine fair value of the reporting and
comparing to its carrying value.
2) Revalue all assets and compare the fair
value of goodwill to its carrying value, and
record impairment for the difference.
13

14. ASC 350 (Con’t)
In 2011, the FASB issued a “Step 0” test for
assessing potential goodwill impairment, which
allows the user to perform a “qualitative test” to
determine whether it is more likely than not
that the fair value of the reporting unit exceeds
its carrying value.
Step 0 was supposed to lower the cost and
complexity of testing, however, due to the
subjective nature of the test, virtually no one
uses the Step 0 test.
Most people skip Step 0.
14

15. Changes to ASC 350 for Private Companies
In January 2014, the FASB issued Accounting
Standards Update (“ASU”) 2014-02. Primary
amendments in this update for ASC 350 were:
Goodwill is amortized straight-line over ten
years, or another useful life if demonstrated.
Testing can be done at a Company or
reporting unit level.
15

16. Changes to ASC 350 for Private Companies
(Con’t)
The impairment amount applied to goodwill
does not require Step 2, instead determining
impairment as the difference between the fair
value and carrying value of goodwill.
Goodwill must be tested when a triggering
event occurs. Goodwill is no longer to be
analyzed at least annually.
Early adoption of ASU 2014-02 was permitted
with many companies early adopting.
16

17. ASC 805
ASC 805 is related to purchase accounting.
In a business combination, all assets and
liabilities acquired must be fair valued,
including all identifiable intangible assets.
17

18. Changes to ASC 805 for Private Companies
In December 2014 (Day before Christmas Eve)
the FASB issued ASU 2014-18. Primary
amendments in this update for ASC 805 were:
Non-competes were no longer required to be
valued and separated from goodwill.
Customer relationships were no longer
required to be valued and separated from
goodwill (in general).
ASU 2014-02 must also be adopted if ASU
2014-18 is elected.
18

19. Changes to ASC 805 for Private Companies
(Con’t)
Assets that can be licensed or sold still must
be valued (items like technology and
trademarks). In addition, contingent
consideration must still be valued.
No change for real and personal property
requirements.
Early adoption of ASU 2014-18 was permitted.
However, due to the requirements, many
private companies did not elect unless there
was less than one transaction in the prior year.
19

20. Current Challenges
Concerns regarding “Big” GAAP and “Little”
GAAP
GAAP divergence with IFRS
20

21. Own Observations
21

22. Questions?
22