Private Company Reporting

As we discussed in our March, 2011 memorandum (see HERE), the Blue Ribbon Committee in February released its recommendations to address the process for private company reporting. This was the culmination of a thorough process that included users of financial statements, especially lenders. Chief among the recommendations was the belief that a separate standard-setting board be created that would evaluate which deviations from GAAP would be appropriate. This recommendation, as well as the other suggestions, was enthusiastically supported by the AICPA and many state boards of accounting.

Recently the Financial Accounting Foundation (FAF), which oversees the FASB (the U.S. accounting rule maker) announced its preference to create an advisory council to the FASB to address private company reporting issues. This decision has been met with almost unprecedented push-back from the AICPA. In summary, the AICPA believes that variations of this approach have been tried and have been proven to be ineffective. The FAF is concerned that it will lose control over a segment of the financial reporting world by allowing an independent board to address private company reporting issues. We believe it is highly likely that the FAF will continue with its proposed approach; however, continue pressure from the AICPA and other groups may achieve many of the goals of the separate board.

Accounting for Leases

As we discussed in February 2011 (see HERE) and have periodically revisited during the year, the exposure draft on lease accounting, affecting both lessees and lessors, was issued in July 2010 and has been going through a comment and re-deliberation phase ever since. We now expect that a new exposure draft (ED) will be issued in early 2012.

There is no doubt that the new ED will retain the basic premise that substantially all leases will be recognized by lessees on the balance sheet as right-to-use assets with a corresponding liability. We do, however, expect noticeable changes in the treatment of option periods and some aspects of accounting by lessors. These are among a myriad of revisions anticipated in the new ED.

What about timing? Although we have seen nothing official, the lease project has been tracking timing-wise the revenue recognition project. It was recently proposed that the effective date for the revenue recognition standard will be January 1, 2015. It is reasonable to assume that the lease standard's effective date should be comparable. This should give all involved sufficient time to plan ahead. Given the long-term nature of many leases, the specifics of the new ED should be considered in all new leases.

Please contact Mark Merriman and any member of the KS&Co team should you desire more information on the topics above.