VIDEO: Private Companies Continue to Get Simpler Accounting Rules

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By Denise Lugo

Private companies, a majority of which are small-to-mid-sized firms, continue to have simpler, less costly accounting rules despite the mandate of the Private Company Council having shifted from its initial role five years ago, FASB member Harold Monk told Bloomberg Tax in a video interview.

See Monk interview here: https://www.bna.com/private-companies-relief-m73014471521/

Today “what you see are standards that have [private company] alternatives built into them,” he said.

Among its recent efforts, the PCC helped the Financial Accounting Standards Board tailor its decisions on a number of topics, including accounting for certain financial instruments with down round features—a highly complex topic. The rules were issued in July.

Down rounds include items like warrants and convertible instruments that result in the strike price being reduced on the basis of the pricing of future equity offerings. Companies have said the old rules are costly and complex. “There were issues that those had to be recorded as liabilities by definition and that meant they had to be fair-valued every year,” Monk said.

Under the new guidance, companies don’t have to revalue those instruments every year. “That’s the type of work the PCC is currently doing and it’s extremely important because we’ve got millions of private companies that these standards impact,” Monk said.

The PCC was established in 2012 to help FASB carve out alternative accounting for private companies from past standards. Four new private company alternatives were issued in 2014 by PCC—with FASB’s clearance—relevant to intangible assets, including goodwill, hedging and variable interest entities.

PCC’s mandate shifted about three years ago. Now it works collaboratively with the board to provide private company insights and outreach for FASB’s current projects.

To contact the reporter on this story: Denise Lugo in New York at dlugo@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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