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Proposed “big lift” expense disclosure rules will be mulled for private companies, FASB Says

A recent FASB proposal to require public companies to disclose more details about obscure income statement expenses will be considered at a later date for privately held companies, according to board advisory discussions.

The board’s immediate plan is to exclude private companies from the proposed “disaggregation of income statement expenses” guidance because it will be costly, and “potentially quite a big lift” for companies, FASB members told the Financial Accounting Standards Advisory Council’s (FASAC) on March 5, 2024. But that will likely change after the rules take effect, they said.

“So what was in my mind was ‘let’s get public companies there first, learn from that experience’ and then that will give us more information at a later date to go back and ask the question ‘does this also make sense for private companies,’” FASB member Christine Botosan said. “If it does make sense ‘are there ways that we can make it less costly for them to transition based on what we’ve learned from public companies going through this process,” she said. “In my mind it wasn’t ‘private companies are excluded and they will always be excluded,’ it was ‘we may want to come back and revisit at a later date.’”

Further, the board considered the urgent demand for the rules by the investment community, FASB member Susan Cosper added. “And if we were to continue to prepare the standard with the idea of private companies and public companies at the same time it’s likely there will be some delay and we would learn more from the issuance of the standard just for public companies,” she said. “So then we could do all the work for private companies as well. In some instances we were trying to not necessarily limit the proposal but at least to provide something that then investors at private companies could determine the relevance of it.”

Their remarks were in response to a question posed by a FASAC member who asked why the FASB voted to exclude the nation’s largest business demographic from Proposed Accounting Standards Update (ASU) No. 2023-ED500, Income Statement —Reporting Comprehensive Income —Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses.

“I just want to get an understanding as to what’s the rationale behind that – there are far more private companies than there are public companies,” said Jonathan Nus, managing director of Global Transaction Advisory, at Alvarez & Marsal.

The FASAC is composed of 36 members who hold senior levels in the accounting profession, including at some of the nation’s largest companies.

The discussion – not the first for the FASAC – comes about a month after the FASB affirmed much of the proposal, which aims to require a more detailed breakout in footnotes of critical expenses that investors say get obscured in totals on the face of the income statement. Board discussions will continue soon on the topic. (See FASB Stays the Course on Proposed Income Statement Expense Disclosures, but Discussions Ongoing in the Feb. 1, 2024, edition of Accounting & Compliance Alert.)

Private company council to consider

FASB staff said that key factors the board took into consideration when voting to exclude privately held companies were costs; access to management; and the Private Company Decision-Making Framework.

However, the Private Company Council (PCC), the panel that works with the FASB to develop rules for privately held companies, will also study the topic to make its own determinations – and they might decide rules are needed, the FASAC discussions revealed.

“The PCC will consider this as they think about areas that will be priorities from their perspective,” FASB Technical Director Hillary Salo explained. “So they have a number of different things that they might be thinking about.”

So far accountants in the public company arena have been bracing for the changes – with a stronger resolve than when they first heard about the guidance.

It costs $10 million to be a public company and private companies can also have “very large private equity investors,” said DeAnn Brunts, member/audit committee chair of B&G Foods, Benson Hill, Claire’s. “This is probably way more expensive and a way bigger deal for public companies than private companies.”

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