Private Company Council releases April meeting summary

Written on Apr 17, 2019

The Private Company Council (PCC) met April 1 -2. Below is a brief summary of issues addressed by the PCC at the meeting, categorized by project:

  • Practical Expedient to Measure Grant-Date Fair Value of Equity-Classified Share-Based Awards: PCC members and the Board continued their discussion from the December 2018 meeting about a potential practical expedient to allow private companies to use the exercise price of their equity-classified share-based payment as the current price for purposes of determining the grant-date fair value of an award (as long as the awards are not in the money at the grant date).

The discussion was predominantly about the process and procedures currently employed by private companies to establish an award’s exercise price and what procedures auditors perform to become comfortable with those processes and procedures. Board members and PCC members also discussed whether the difficulties associated with the current price input is an accounting issue that can effectively be addressed through standard setting, an audit issue, or both.

PCC members then discussed the additional outreach that will be needed to better understand preparer and auditor procedures for establishing and auditing the exercise price and current price of an equity-classified award. This outreach will help the PCC and the Board determine whether a practical expedient that is operable, auditable, and cost effective for private companies can be developed.

  • Implementation Topics: PCC members discussed private company implementation activities related to the recently updated leases and revenue recognition standards. Members indicated that many private company stakeholders are not adequately prepared for the upcoming effective dates. PCC members suggested that additional educational materials, especially on accounting for transition to the new leases standard, may significantly benefit stakeholders.

  • Distinguishing Liabilities from Equity: PCC members generally supported the reduction in the number of models for convertible debt and preferred shares. Some members inquired about the intention and language of the new disclosure requirements.

  • Disclosures by Business Entities about Government Assistance: The staff briefed the PCC about the Board’s recent decision to do additional outreach on the cost-benefit concerns of the proposed disclosures, as updated for the Board’s decisions during redeliberations. PCC members continued to have mixed views about the usefulness of the information that the disclosures provide.

  • Financial Performance Reporting: PCC members cautioned that developing a standard for all organizations will be difficult because of management evaluating different metrics as a company grows. Some PCC members noted that disaggregated information that helps users understand in greater detail the expenses that have been reported on the income statement would be decision useful.

  • Simplifying the Balance Sheet Classification of Debt: PCC members discussed the complexity associated with the project and continued to support the view that unused lines of credit should not be considered in determining debt classification.

  • Disclosure Framework: Disclosure Review—Income Taxes: PCC members discussed the potential difficulties with disaggregating income tax information at the state level related to estimating current and deferred income tax expense and the use of blended rates.

  • Disclosure—Codifying SEC Disclosures: PCC members generally supported the project but indicated that some of the disclosures discussed would not be cost beneficial because of the ability of private company stakeholders to obtain that information through their access to management.

The next PCC meeting will be held June 24 – 25.

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