FASB Removes Effective Dates of Private Company Accounting Alternatives
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) 2016-03: Intangibles – Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815). The FASB issued this ASU to address concerns raised by The Private Company Council (PCC) because of concerns that some private companies would not be able to elect the alternatives by their effective dates and companies that were unaware of the alternatives until after the effective date would not have been able to elect them. ASU 2016-03 amends the following ASU, by eliminating the effective dates immediately:
- ASU 2014-02, Intangibles - Goodwill and Other (Topic 350): Accounting for Goodwill
- ASU 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive- Variable, Pay Fixed Interest Rate Swaps – Simplified Hedge Accounting Approach
- ASU 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements
- ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination
By removing the effective dates of the guidance above, ASU 2016-03 allows private companies to implement the ASU without assessing whether the private company accounting alternative is preferable under Topic 250, Accounting Changes and Error Corrections. Under the previous rules, a private company that adopted an accounting alternative after its affective day had to assess whether the alternative was preferable to its accounting policy at the time. This will allow private companies, which were unaware of an accounting alternative, to adopt the alternative without having to bear the cost of preferability assessment.
The amendments extended the transition guidance in private company alternatives as well. With the elimination of the effective dates and extension of the transition guidance, companies electing to adopt ASU 2014-02 will prospectively apply the standard to existing goodwill as of the beginning of the fiscal year of adoption and new goodwill recognized thereafter.