The Financial Accounting Standards Board has added a new project to its agenda aimed at reducing or eliminating the need for private companies and not-for-profit organizations to provide as many fair value measurement disclosures as public companies.
FASB chair Leslie Seidman decided to add the new project to the board’s agenda Tuesday based on feedback from private company constituents.
The project will evaluate the need for the existing disclosure requirements for privately held companies and not-for-profits for fair value measurements categorized within Level 3 of the fair value hierarchy.
Level 3 refers to fair value measurements that are determined using significant unobservable inputs, such as their expected future growth rates. The new project on FASB’s agenda will involve conducting targeted outreach to private company and not-for-profit stakeholders, especially investors, lenders, donors, and other users, to assess the relevance of the existing Level 3 fair value measurement disclosure requirements to their organizations.
“FASB selected this project because of pervasive concerns expressed by nonpublic entity stakeholders regarding existing fair value disclosures, particularly that many of the requirements are irrelevant to their financial statement users and are very costly to prepare,” Seidman said in a statement.
“The input that we received during our recently held private company roundtable discussions was invaluable, and the relevance of existing fair value disclosures was top-of-mind for private companies,” said FASB board member Marc Siegel. “Board members felt that a project should be undertaken to further explore whether private companies and not-for-profit organizations should be exempt from providing some disclosures about Level 3 fair value measurements.”
FASB has been trying to demonstrate its willingness to take into account the concerns of privately held companies and their financial statement preparers this year in the wake of a report from a Blue Ribbon Panel on Standard Setting for Private Companies, which recommended setting up a new board for private company accounting rules. Even before the report’s release in January, the board began taking steps such as holding a series of roundtable meetings with private companies, setting up a portal on its Web site to provide information for private companies and not-for-profits, and increasing its interactions with its advisory committee, the Private Company Financial Reporting Committee.
FASB’s parent organization, the Financial Accounting Foundation, recently issued a proposal for setting up a new Private Company Standards Improvement Council to replace the PCFRC. The new council would have the ability to propose and vote on exceptions for standards for private companies, but any changes would still be subject to ratification by FASB.
The American Institute of CPAs and a number of state CPA societies, including the Texas Society of CPAs, and CPA firms such as Clifton Gunderson, however, still want the FAF to set up a separate board for private company accounting standards, overseen by the FAF, in response to the Blue Ribbon Panel Report (see Clifton Gunderson Pushes Separate Board for Private Company GAAP). They have been writing comment letters to the FAF on the proposal for the new council ahead of a January deadline.
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