The Financial Accounting Standards Board has issued an updated financial instruments standard clarifying how some fair value requirements do not apply to private companies and not-for-profit organizations.

Accounting Standards Update No. 2013-03, “Financial Instruments (Topic 825): Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities," clarifies the scope and applicability of a disclosure exemption that is specific to private companies and not-for-profit organizations that resulted from the issuance of Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.”

The update clarifies that the requirement to disclose “the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)” does not apply to private companies and nonpublic not-for-profit organizations for items that are not measured at fair value in the statement of financial position, but for which fair value is disclosed. The amendments will be effective upon issuance Thursday.

The update aims to make good on FASB’s commitment to listen to feedback from private company accountants and not-for-profits about the need to make some exceptions in how the standards should apply to them as opposed to publicly traded companies. FASB’s parent organization, the Financial Accounting Foundation, recently established a Private Company Council that will be holding its second meeting next week on February 12, where it will be considering issues such as how the existing standards for consolidations, recognizing and measuring various intangible assets, and accounting for income taxes and interest rate swaps should be adjusted for privately held companies (see Atkinson: PCC Marks ‘Cultural Change’ in Standard-Setting).

FASB has also  been working on a decision-making framework to help FASB and the newly created Private Company Council identify the unique needs of users of private company financial statements, along with any opportunities to reduce the complexity and cost of preparing private company financial statements in accordance with U.S. GAAP (see FASB Proposes Private Company Decision Framework).