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Four Minor GAAP Amendments for Private Companies Are Made Effective Immediately

The FASB is giving private companies an easier transition to four limited amendments to U.S. GAAP that were adopted for privately held businesses in 2014. The FASB also said it is including amendments that let private companies avoid having to make what is called “a preferability assessment” in U.S. GAAP if they adopt one of the accounting alternatives within the update.

The FASB on March 7, 2016, published Accounting Standards Update (ASU) No. 2016-03, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815) — Effective Date and Transition Guidance, a Consensus of the Private Company Council, to make effective immediately four minor amendments to U.S. GAAP that were issued in 2014.

ASU No. 2016-03 implemented this change by removing the effective dates from ASU No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, a Consensus of the Private Company Council , ASU No. 2014-03, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach, a Consensus of the Private Company Council, ASU No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, a Consensus of the Private Company Council , and ASU No. 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination, a Consensus of the Private Company Council.

In ASU No. 2016-03, the FASB also said it is including amendments that let private companies avoid having to make what is called “a preferability assessment” in U.S. GAAP if they adopt one of the accounting alternatives within the update. Until the adoption of ASU No. 2016-03, a private company that adopted an accounting alternative after its effective date had to assess whether the alternative was preferable to its accounting policy at that time.

“Any subsequent change to an accounting policy election requires justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections,” the FASB said. “Forgoing an initial preferability assessment allows private companies to adopt a private company accounting alternative within the scope of this update when those companies experience a change in circumstances or management’s strategic plan. It also allows private companies that were unaware of an accounting alternative to adopt the alternative without having to bear the cost of justifying preferability.”

ASU No. 2014-02 makes it easier for private companies merging with or buying other companies to account for the goodwill recorded with the deals. ASU No. 2014-03 lets private companies use a simpler form of hedge accounting when they use simple interest rate swaps to secure fixed-rate loans.

ASU No. 2014-07 was issued to help private companies report some common control leasing arrangements. ASU No. 2014-18 lets private companies avoid recognizing some hard-to-value intangible assets when they buy or merge with another company.

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