Friday, January 9, 2009

Private Cos: New Disclosures Required For Year-End 2008

New disclosure requirements applicable to private companies in documents issued by FASB on December 30 may have gone under the radar screen, FASB was told by its Private Company Financial Reporting Committee (PCFRC) yesterday.

PCFRC specifically discussed a new disclosure requirement relating to income taxes in a FASB document issued on Dec. 30 (FSP FIN 48-3). Also discussed were proposed new disclosure requirements for financial instruments (Proposed FSP FAS 107-a) on which comments are due Jan. 15. Additionally, although not discussed at the PCFRC meeting, FSP FAS 132R-1 issued by FASB on Dec. 30, sets forth new disclosure requirements for pension plan assets for public and private companies for years ending after Dec. 15, 2009, but also contains a technical amendment clarifying existing disclosure requirements for private companies, which is effective immediately.

Income Taxes
FSP FIN 48-3, Effective Date of Interpretation No. 48 for Certain Nonpublic Enterprises, not only defers the effective date of FIN 48 for private companies (see eligibility requirements below), but also includes a new disclosure requirement for private companies which is effective immediately, as stated in paragraph 10 of the FSP:

“A nonpublic enterprise that elects to defer the application of Interpretation 48 in accordance with this FSP shall explicitly disclose that fact and shall disclose its accounting policy for evaluating uncertain tax positions for each set of financial statements where the deferral applies.”

PCFRC chair Judy O’Dell told FASB board members that the new disclosure requirement contained in the FSP was ‘probably going to get missed by a majority of practitioners’ because the disclosure requirement did not appear in the earlier (proposed) version of the FSP.

Therefore, to the extent CPA practitioners and preparers at private companies were aware of the issuance of the final FSP, they may have assumed it was mainly a formality in officially delaying the effective date of FIN 48 for private companies. We discuss this further in Read the Fine Print, below.

Eligibility for the delay: the title of FSP FIN 48-3 notes that the deferral of FIN 48 applies to ‘certain nonpublic enterprises.’ Eligibility requirements as set forth in paragraph 9 of the FSP, and reiterated up front in paragraph 1 of the FSP, note that the following private companies are excluded from the delay: nonpublic consolidated entities of public enterprises that apply U.S. generally accepted accounting principles, and nonpublic enterprises that have already applied the recognition, measurement and disclosure provisions of Interpretation 48 in a full set of annual financial statements issued prior to the FSP’s issuance.

Financial Instruments
Another matter of concern pointed out by PCFRC members at its meeting with FASB yesterday was Proposed FSP FAS 107-a, Disclosures about Certain Financial Assets: An Amendment of FASB Statement No. 107. The FSP was released by FASB on Dec. 24 with a proposed effective date of interim and annual reporting periods ending after December15, 2008. PCFRC members told FASB the timing of the FSP at year-end posed a concern particularly for private companies.

During a discussion preceding the meeting with FASB board members, PCFRC member Tom Groskoph, a Director at Barnes Dennig, an audit, tax and consulting firm located in Cincinnati, referred to the financial instruments disclosures FSP as representing a ‘trifecta’ of concerns to private companies: a short comment period, an immediate effective date, and an issue that was driven more by concerns about public companies than private companies.

The comment deadline on Proposed FSP FAS 107-a is Jan. 15; FASB is expected to vote on whether to finalize the FSP (and may make certain changes based on their consideration of comment letters received) fairly soon after the comment deadline. (In a related action, FASB voted earlier this week to finalize an FSP relating to impairment of certain debt securities, as detailed here.)

Post-Retirement Benefits
Although not discussed at the PCFRC meeting, we wanted to bring your attention to another FSP released by FASB on Dec. 30 which includes not only new disclosure requirements, but a clarification of existing disclosure requirements.

FSP FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets includes a technical amendment which is effective immediately, which clarifies that private companies (like public companies) must disclose the amount of net periodic benefit cost.

All other amendments contained in the FSP that increase the disclosure requirements for plan assets, e.g. relating to fair value of plan assets, concentrations and categories of plan assets, and more, are effective for fiscal years ending after Dec. 15, 2009.

And That’s Not All
This blog post does not include ALL new requirements effective as of year-end 2008, we are only highlighting 2 FSPs that were issued on December 30 and one Proposed FSP released on Dec. 24. Refer to the FASB website for complete details on all new standards issued in 2008, 2009 and prior years.

Read the Fine Print
Although the disclosure requirement in FSP FIN 48-3 cannot be described as ‘fine print’ – it literally appears in bold in paragraph 10 of the FSP under a subheading entitled ‘Disclosures’ – many people may have wrongly assumed there were no new disclosure requirements based on the title of the FSP which does not mention disclosures, and based on the history of the FSP as pointed out by PCFRC.

News coverage may have also missed this late-breaking development or focused on the most significant aspect of the FSP, the deferral. We admittedly did not post about the release of FSP FIN 48-3 in our blog until now (having been up all night summarizing SEC’s Dec. 30 report to Congress on mark-to-market accounting) although we included a blurb about it - mentioning the deferral as well as the disclosure requirement - in our e-newsletter, FEI Express, that went out to all FEI’s private company members earlier this week. Some blogs, like the NYSSCPA’s new blog, posted about the FSP on Jan. 2, but focused on the deferral, and did not mention the disclosure requirement. FASB’s press release as issued on Dec. 30 did not reference the new disclosure requirement, only the deferral, although it provided a direct link to the FSP, and reference should always be made to the original document (i.e. the standard or FSP).

PCFRC members pointed out to FASB that educational resources relied upon by many CPA firms with mainly private company clients rely on annual updates of new requirements which are published before year-end. FASB board members were not entirely sympathetic to this argument, since there are other avenues for people to become aware of new FASB standards, such as through FASB’s website and through various private sector online and print publications. See Resources, below.

Mark Wells, an observer at yesterday’s PCFRC meeting, mentioned after the meeting with FASB that besides the print services provided by his firm, Thomson Reuters, they also provide an online news update service as part of their Checkpoint program.

CCH also offers an online research and news services as part of its Accounting Research Manager. You can also sign up for a free demo of the program.

BNA provides various tax and accounting newsletters and services. Additional details from the PCFRC meeting can be found in an article in today’s BNA Daily Report for Executives, PCFRC Discusses Process, New User Panel, Board Projects in First Meeting With FASB, by Steve Burkholder.

See also online news services like and

Professional associations for financial executives and CPAs which provide resources about new accounting developments include the AICPA, state CPA Societies, and professional associations for financial executives like FEI and its Financial Executives Research Foundation . FERF reports are provided free to FEI members, in addition to our bi-weekly electronic newsletter, FEI Express, as a benefit of membership. FEI advocacy activities also include filing comment letters on proposals; a comment letter filed by FEI’s Committee on Private Companies, standards subcommittee in support of the delay of FIN 48 for private companies was of the comment letters cited by FASB during its board meeting in December when it voted to grant the delay.

For information about membership in FEI and its educational, advocacy, and networking programs, visit our website here and here or contact Nancy Ehlers and tell her you read about it in our blog.

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