Developed and presented by Samuel A. Monastra, CPA
March 2014
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SAMUEL A. MONASTRA, CPA
Mr. Monastra is a Director with McGladrey, LLP. He has extensive
experience with publicly held companies and large privately held
companies. Industry focus: manufacturing, life sciences &
technology, financial services, and public sector.
Mr. Monastra served in executive roles with National CPA firms,
and as a member of the Editorial Board of the Pennsylvania CPA
Journal. He has also been a frequent speaker for numerous State
CPA Societies, the Institute of Internal Auditors, and the Institute
of Management Accountants on financial reporting topics.
Mr. Monastra has a focus on financial reporting with a particular
emphasis on Revenue Recognition, IASB/FASB Convergence,
Business Combinations, Asset Impairments, and Fair Value.

On January 16, 2014, the Financial Accounting
Standards Board issued Accounting Standards
Update (ASU) 2014-02, Intangibles—Goodwill
and Other (Topic 350): Accounting for Goodwill.
This ASU introduces an accounting alternative for
private companies that simplifies and reduces the
costs associated with the subsequent accounting
for goodwill. The effects of a private company
electing the accounting alternative as its
accounting policy for goodwill include:
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Amortizing goodwill over a period not to exceed 10
years instead of not amortizing it
Choosing to test goodwill for impairment at either
the entity level or the reporting unit level instead of
having to test goodwill at the reporting unit level
Testing goodwill for impairment only when there is a
triggering event instead of testing it every year
Testing and measuring goodwill for impairment by
comparing the fair value of the entity (or reporting
unit) to its carrying amount instead of performing a
two-step goodwill impairment test that requires
hypothetical business combination accounting for
purposes of measuring an impairment loss
If the accounting alternative is elected, all
aspects of it must be elected. In other words,
a private company cannot elect to apply the
impairment guidance and not elect to apply
the amortization guidance.
Scope
Private companies include entities other than
the following: (a) those that meet the
definition of a public business entity or notfor-profit entity as defined in the Master
Glossary of the FASB’s Accounting Standards
Codification (ASC) or (b) employee benefit
plans that fall within the scope of the related
topics in the ASC (Topics 960, 962 and 965).
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The FASB recently issued ASU 2013-12,
Definition of a Public Business Entity: An
Addition to the Master Glossary, which added
the definition of a public business entity to
the ASC. This definition is broader than the
definitions of public entity and publicly
traded company currently included in the
Master Glossary of the ASC.
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If elected, the accounting alternative applies
to all new and existing goodwill. In other
words, the accounting alternative cannot be
elected for the goodwill related to some
acquisitions, but not the goodwill related to
other acquisitions. The accounting alternative
also applies to the excess reorganization
value that may arise in applying fresh-start
reporting as described in ASC 852,
Reorganizations.
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In addition, the amortization component of
the accounting alternative applies to equity
method goodwill, which is a component of an
investor’s equity method investment (i.e., it is
not recorded separately from the equity
method investment). As a result, when an
investor determines its equity method
income/loss, the amortization of any equity
method goodwill must be included in this
amount if the accounting alternative is
elected.
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However, consistent with current guidance,
equity method goodwill is not tested for
impairment separately from the overall equity
method investment. In other words, neither
the accounting alternative nor the legacy
goodwill accounting model is used to test
equity method goodwill for impairment.
Amortization
The unit of accounting for goodwill
amortization (or the amortization of excess
reorganization value) is the goodwill related
to each acquisition (or the excess
reorganization value related to each
reorganization event).
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If the accounting alternative is elected, goodwill is
amortized on a straight-line basis over a period not
to exceed 10 years. A private company can default to
a 10-year amortization period (without justification)
for goodwill or choose to identify and use a shorter
useful life if it can demonstrate that it is more
appropriate. For example, if a private company
acquires a target primarily to gain control of the
target’s proprietary intellectual property and the
underlying patent for that intellectual property
expires in 7 years, it may be appropriate to use a
useful life of 7 years to amortize any related goodwill.
It would rarely, if ever, be possible to demonstrate
that a useful life of zero is appropriate.
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If the facts and circumstances related to the
useful life of a private company’s goodwill
warrant a revision to that life, the private
company can choose to (but does not have to)
change the goodwill’s useful life. When a private
company chooses to change the useful life of
goodwill, it should ensure that the change will
not result in a cumulative useful life for that
goodwill in excess of 10 years. The effects of a
change to the useful life of goodwill are
accounted for prospectively.
Impairment Testing
Unit of accounting
If the accounting alternative is elected, a private company must
make an accounting policy election with respect to whether it
performs its goodwill impairment testing at the entity level or the
reporting unit level. The definition of a reporting unit and the
related guidance in the ASC has resulted in numerous practice
issues for private companies over time. Some of these practice
issues arise because the definition of a reporting unit has its
origins in ASC 280, Segment Reporting, which is only directly
applicable to public entities. Electing to perform goodwill
impairment testing at the entity level under the accounting
alternative will save a private company from having to deal with
these practice issues and the related costs.
Impairment Testing
Frequency
If the accounting alternative is elected, goodwill should only be
tested for impairment when a triggering event occurs. The
occurrence of a triggering event draws into question whether the
fair value of the entity (or reporting unit) may be below its
carrying amount. ASC 350-20-35-3C provides many (but not all
of the potential) examples of triggering events, including a
deterioration in general economic conditions, an increased
competitive environment, increases in the costs of raw materials
or labor, negative or declining cash flows and changes in key
personnel. A determination should be made at the end of each
reporting period as to whether any triggering events occurred
during the reporting period. If one or more triggering events
occurred, then the private company should test its goodwill for
impairment
Impairment Testing
Testing and recognition
If the accounting alternative is elected and one or more triggering events
occur, a private company must test its goodwill for impairment. As part
of that testing, a private company must first decide whether it will
perform a qualitative assessment of whether its goodwill is impaired. If
elected, the qualitative assessment requires the private company to
answer the following question after considering all the relevant
information available: Is it more likely than not that the fair value of the
entity (or reporting unit) is less than the carrying amount of the entity
(or reporting unit)? Each time a triggering event occurs, the private
company can choose to perform or not perform the qualitative
assessment. In other words, the private company’s decision to perform
or not perform the qualitative assessment when a triggering event
occurs does not pre-determine what it will have to do the next time a
triggering event occurs.
Impairment Testing
Testing and recognition
Spending the time and effort to perform a qualitative assessment is
likely not justified from a cost-benefit perspective under the
accounting alternative given that the performance of the
goodwill impairment assessment was prompted by the private
company concluding that the fair value of the entity (or reporting
unit) may be below its carrying amount because a triggering
event occurred. In other words, we believe it would be very
unlikely that a private company would be able to conclude that it
is not more likely than not that the fair value of the entity (or
reporting unit) is less than its carrying amount (i.e., passing the
qualitative assessment) after having just concluded that the fair
value of the entity (or reporting unit) may be below its carrying
amount (which was the outcome of the triggering event analysis
that led to the goodwill impairment testing in the first place).
Impairment Testing
Testing and recognition
In the unlikely event that a private company opts to
perform the qualitative assessment under the
accounting alternative and passes, the private
company is finished with its impairment testing and
no impairment is recognized. Otherwise, the private
company must proceed to a quantitative assessment,
which is also performed if the private company
chooses not to perform the qualitative assessment.
The quantitative assessment compares the fair value
of the entity (or reporting unit) to its carrying amount
(which includes goodwill).
Impairment Testing
Testing and recognition
If the fair value of the entity (or reporting unit) is more than its
carrying amount, no impairment is recognized. If the fair value of
the entity (or reporting unit) is less than its carrying amount,
then an impairment loss is recognized for the excess of the
carrying amount over fair value. However, the amount of the
impairment loss cannot be more than the carrying amount of the
goodwill. The method used to calculate an impairment loss
under the accounting alternative eliminates the need to perform
a two-step goodwill impairment test that requires hypothetical
business combination accounting for purposes of measuring an
impairment loss, which is one of the most complex and costly
elements of the legacy goodwill accounting model.
Impairment Testing
Testing and recognition
Under the accounting alternative, deferred income taxes
should be included in the carrying amount of the entity (or
reporting unit) for those private companies subject to the
provisions of ASC 740, Income Taxes. The inclusion of
deferred income taxes in the carrying amount is not
dependent on whether the fair value of the entity (or
reporting unit) is measured assuming a taxable or
nontaxable transaction.
Impairment Testing
Testing and recognition
Under the accounting alternative, if a goodwill impairment loss is
recognized and the private company has goodwill from more than one
acquisition on its books, the impairment loss should be allocated among
the goodwill related to each acquisition using a reasonable and rational
method. One such method allocates the impairment loss based on the
carrying amount of each acquisition’s goodwill relative to the entity’s (or
reporting unit’s) total goodwill. Another method might take into
consideration whether the impairment loss could be attributed to a
particular acquisition.
Impairment Testing
Testing and recognition
Recognition of a goodwill impairment loss establishes a new basis for the goodwill.
It is not appropriate to reverse the impairment loss under any circumstances. The
new basis in goodwill is amortized over its remaining useful life. For example,
assume a private company has goodwill that it is amortizing over 10 years and it
recognizes an impairment loss on that goodwill four years after the related
acquisition. After the impairment loss is recognized, the private company would
recognize the new basis in goodwill over the remaining life of six years. However,
the private company could choose to revise the useful life in accordance with the
guidance discussed earlier. In doing so, the private company would not be able to
use a useful life greater than six years because it is limited to a cumulative useful
life of 10 years.
Impairment Testing
Sequencing of impairment testing
If other assets have to be tested for impairment at the same time goodwill is being
tested for impairment (because other applicable guidance in the ASC requires
those assets to be tested for impairment), those other assets should be tested for
impairment before goodwill is tested. For example, a triggering event that gives
rise to testing goodwill for impairment under the accounting alternative may also
result in the private company having to test property, plant and equipment for
impairment in accordance with ASC 360-10, Property, Plant, and Equipment –
Overall. In that situation, the property, plant and equipment should be tested for
impairment before the goodwill. Given the implications of this guidance, private
companies should carefully consider whether the triggering event giving rise to
the goodwill impairment test would also cause other assets of the entity (or
reporting unit) (e.g., accounts receivable, inventory, equity method investments,
property, plant and equipment) to be tested for impairment.
Derecognition
Under the accounting alternative, when part of a private company
is going to be disposed of, consideration should be given to
whether any goodwill should be allocated to that part. If the part
being disposed of meets the definition of a business, goodwill
should be allocated to it using a reasonable and rational
approach. If the private company tests goodwill for impairment
at the reporting unit level, we believe the guidance in ASC 35020-40-1 through 6 generally represents a reasonable and
rational approach to allocating goodwill in this situation. If the
part being disposed of does not meet the definition of a
business, goodwill should not be allocated to it. When goodwill is
allocated to a business to be disposed of, it factors into the
amount of gain or loss recognized upon its disposal
Presentation
Private companies that elect the accounting alternative must
present goodwill net of accumulated amortization and
impairment as a separate line item on its balance sheet.
Income statement charges related to goodwill (i.e.,
amortization and impairment) should be included in
income from continuing operations, unless the goodwill
relates to a discontinued operation, in which case the
charges (net of tax) should be included in the results from
discontinued operations. For those amounts included in
income from continuing operations, there is no specific
requirement to present them as a separate line item or
within a specific line item
Disclosure
Introducing the accounting alternative in U.S.
generally accepted accounting principles (GAAP)
results in a private company having an
accounting policy choice related to how it
subsequently accounts for goodwill. As a result, a
private company’s policy related to its accounting
for goodwill should be disclosed in accordance
with ASC 235-10-50. In addition, if a private
company elects the accounting alternative, it
would also be required to provide the necessary
disclosures regarding the change in accounting
principle.
Disclosure
If a private company elects the accounting alternative,
it would be required to provide many of the same
disclosures required related to the legacy goodwill
accounting model. However, some new disclosure
requirements would apply. For example, the private
company would have to disclose information related
to the amortization of goodwill, including
accumulated amortization, total amortization
expense and the weighted-average amortization
period for goodwill in total as well as for each major
business combination. Other disclosures related to
goodwill and goodwill impairment losses would also
apply.
Disclosure
Refer to ASC 350-20-50-4 through 7 for all of
the disclosures that would be required if a
private company elects the accounting
alternative. While private companies that elect
the accounting alternative no longer have to
disclose changes to goodwill in a tabular
format, much of the information that was
required to be included in the table is still
otherwise required
Effective date and transition
The accounting alternative is effective prospectively for
new goodwill recognized in annual periods beginning
after December 15, 2014, and interim periods within
annual periods beginning after December 15, 2015.
Early adoption is permitted provided financial
statements for the period of adoption have not yet
been made available for issuance. If the accounting
alternative is elected, a private company can default
to a 10-year amortization period (without
justification) for goodwill that exists as of the
beginning of the period of adoption or it can choose
to identify and use a shorter useful life if it can
demonstrate that it is more appropriate.
Effective date and transition
If a private company early adopts the accounting
alternative in its 2013 calendar year-end financial
statements because it has not yet made those
financial statements available for issuance, it would
adopt the accounting alternative as of January 1,
2013. As such, amortization of any goodwill in
existence on January 1, 2013 would start on that date
(and, absent any derecognition events, a full year of
amortization expense would be recognized on that
goodwill in 2013) and amortization of any new
goodwill related to acquisitions in 2013 would begin
on the acquisition date of the related business
combination.
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Public Business Entity
A public business entity is a business entity meeting any one of the criteria
below. Neither a not-for-profit entity nor an employee benefit plan is a
business entity.
a. It is required by the U.S. Securities and Exchange Commission (SEC) to
file or furnish financial statements, or does file or furnish financial
statements (including voluntary filers), with the SEC (including other
entities whose financial statements or financial information are required
to be or are included in a filing).
b. It is required by the Securities Exchange Act of 1934 (the Act), as
amended, or rules or regulations promulgated under the Act, to file or
furnish financial statements with a regulatory agency other than the
SEC.
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Public Business Entity
c. It is required to file or furnish financial statements with a foreign or
domestic regulatory agency in preparation for the sale of or for
purposes of issuing securities that are not subject to contractual
restrictions on transfer.
d. It has issued, or is a conduit bond obligor for, securities that are traded,
listed, or quoted on an exchange or an over-the-counter market.
e. It has one or more securities that are not subject to contractual
restrictions on transfer, and it is required by law, contract, or regulation
to prepare U.S. GAAP financial statements (including footnotes) and
make them publicly available on a periodic basis (for example, interim or
6 annual periods). An entity must meet both of these conditions to meet
this criterion. An entity may meet the definition of a public business
entity solely because its financial statements or financial information is
included in another entity’s filing with the SEC. In that case, the entity is
only a public business entity for purposes of financial statements that
are filed or furnished with the SEC.
On January 16, 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2014-03, Derivatives and
Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed
Interest Rate Swaps—Simplified Hedge Accounting Approach. As
background information, the FASB’s Accounting Standards Codification
(ASC) Topic 815, Derivatives and Hedging (ASC 815), requires derivatives
such as interest rate swaps to be recognized on the balance sheet at fair
value, with changes in fair value recognized through the income
statement unless the entity elects and qualifies for hedge accounting. It
is not uncommon for lenders to require an entity desiring a fixed-rate
borrowing to enter into a variable-rate borrowing with a separate
interest rate swap agreement to economically obtain the desired fixed
rate. While hedge accounting is generally desirable to avoid income
statement volatility and to reflect the fixed rate of interest in the
financial statements, the pre-existing provisions of ASC 815 to achieve
hedge accounting are considered to be very complex. ASU 2014-03
provides certain private companies with an option to apply a simplified
hedge accounting approach under ASC 815 for receive-variable, payfixed interest rate swaps used to convert variable-rate borrowings to
fixed-rate borrowings.
The benefits of an entity electing the simplified
approach for qualified swaps and borrowings
include:
The ability to make the election on a swap-byswap basis and assume no ineffectiveness with
the hedge relationship
The ability to elect to measure the swap at
settlement value instead of fair value
The extension of the date for which all
documentation for the election is required to be
in place to the date on which the annual financial
statements are available to be issued
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Scope
The simplified approach is available to certain private companies, more
specifically entities other than the following: (a) those that meet the
definition of a public business entity or not-for-profit entity as defined
in the Master Glossary of the ASC, (b) employee benefit plans that fall
within the scope of the related topics in the ASC (Topics 960, 962 and
965) and (c) financial institutions, which includes banks, savings and
loans associations, savings banks, credit unions, finance companies and
insurance entities. With the exception of the exclusion for financial
institutions, this scope is consistent with the scope of the Private
Company Decision-Making Framework. The Private Company Council
(PCC) excluded financial institutions from the scope of the ASU under
the belief that such entities generally use numerous derivative
instruments and have adequate resources to comply with ASC 815. The
FASB recently issued ASU 2013-12, Definition of a Public Business Entity:
An Addition to the Master Glossary, which added the definition of a
public business entity to the ASC. Entities who are considering electing
the simplified approach should pay careful attention to this definition as
it is broader than the definitions of public entity and publicly traded
company currently included in the Master Glossary of the ASC.
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Simplified approach
Under the simplified approach, an entity is able to assume no ineffectiveness for qualifying swaps
and, as a consequence, record periodic interest expense as though it had entered into a fixedrate borrowing as opposed to a variable-rate borrowing and interest rate swap. This approach
can only be elected when all the following criteria are met:
Both the variable rate on the swap and the borrowing are based on the same index and reset
period (e.g., both are based on 1-month London Interbank Offered Rate (LIBOR) or both are
based on 3-month LIBOR).The terms of the swap are typical (i.e., a plain vanilla swap), and
there is no floor or cap on the variable interest rate of the swap unless the borrowing has a
comparable floor or cap.
The repricing and settlement dates for the swap and the borrowing match or differ by no more
than a few days.
The swap’s fair value at inception (i.e., at the time the derivative was executed to hedge the
interest rate risk of the borrowing) is at or near zero.
The notional amount of the swap matches the principal amount of the borrowing being hedged.
For this condition to be met, the amount of the borrowing being hedged may be less than the
total principal amount of the borrowing.
All interest payments occurring on the borrowing during the term of the swap (or the effective
term of the swap underlying the forward starting swap) are designated as hedged (whether in
total or in proportion to the principal amount of the borrowing being hedged).
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In establishing the above criteria, the PCC decided to limit the use of the
simplified approach to a narrow set of circumstances that commonly pose practice
issues for private companies. With regards to interest rate swaps and borrowings
that contain caps or floors on the variable rate, the use of the word “comparable”
in the second criterion above does not necessarily mean equal. For example,
assume an interest rate swap has a variable rate based on LIBOR and the
borrowing has a variable rate of LIBOR plus 2 percent. A 10 percent cap on the
swap would be comparable to a 12 percent cap on the borrowing. Forwardstarting swaps can also qualify for the simplified approach as long as the interest
payments to be swapped are probable and all other criteria are met. For example,
a two-year interest rate swap forward starting in three years could meet the
required criteria if executed in the beginning of the first year of a five-year
borrowing. In addition, a five-year interest rate swap forward starting in one year
could meet the required criteria for a five-year borrowing forecasted to occur in
one year. It is also evident from the ASU’s “Basis for Conclusions” that borrowings
with different options for the variable-rate index are eligible for the simplified
approach if the required criteria are met at the inception of the interest rate swap
agreement. If the borrower subsequently elects a different rate index or reset
period that differs from the swap, the hedge would be disqualified or
dedesignated as.
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Documentation of election
Entities have until the date on which the annual financial statements are available to
be issued to complete the required documentation to elect the simplified
approach. This is a significant concession from the general requirements of ASC
815, which mandates that proscribed documentation be in place at the inception
of any hedge. Based on the PCC’s outreach and comment letters to the related
exposure draft, the documentation requirements of ASC 815 were challenging for
private companies as they typically lack the expertise or staff to ensure the
documentation is in place at the inception of hedges. The lack of documentation
at inception of the hedge was typically one of the reasons why a private company
could not apply hedge accounting in the past. It is important to note that while the
documentation to elect the simplified approach does not need to be
contemporaneous, it does need to meet the stringent and detailed requirements
of ASC 815-20-25-3 with regards to content. Additionally, while the ASU provides
additional time for the election to apply the simplified approach to be made and
documentation to be put in place, it would be prudent for reporting entities to not
delay this process, particularly for new interest rate swaps. In the event the entity
and (or) hedge does not meet the requirements to use the simplified approach,
reporting entities who desired to apply hedge accounting would need to comply
with the contemporaneous documentation and other requirements of the general
provisions of ASC 815.
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Measurement
If the simplified approach is elected for any swaps,
the entity also has the option to record those
swaps at settlement value rather than fair value.
The primary difference between settlement value
and fair value is that nonperformance risk is not
considered in determining settlement value.
Settlement value is typically estimated using a
valuation technique that is not adjusted for
nonperformance risk (e.g., a present value
calculation of the swap’s remaining estimated
cash flows using a discount rate that represents a
risk-free rate).
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Dedesignation or termination of hedge
If any of the required criteria for applying the simplified approach
subsequently cease to be met or the relationship otherwise ceases to
qualify for hedge accounting, the general provisions of ASC 815 would
apply at that date and on a prospective basis. For example, if the related
variable-rate borrowing is prepaid without terminating the swap, the
amount in accumulated other comprehensive income associated with the
swap would immediately be reclassified into earnings in accordance with
ASC 815-30-40-5. Additionally, unless designated under a new hedge
under the general provisions of ASC 815, the swap would be
subsequently measured at fair value with the changes in fair value
recognized in earnings on a prospective basis as those changes occur.
Conversely, if the swap is terminated early without the related variablerate borrowing being prepaid, the gain or loss on the swap in
accumulated other comprehensive income would generally be
reclassified into earnings in the same period or periods over which the
hedged transactions (variable interest payments on the borrowing) affect
earnings.
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Disclosure
The disclosure requirements under ASC 815 continue to apply for swaps for which
the simplified approach is elected, as do the fair value disclosures required by ASC
820, Fair Value Measurement. If an entity elects to use settlement value instead of
fair value as the measurement basis, settlement value is replaced for fair value in
the disclosures, with amounts recorded at settlement value disclosed separately
from amounts recorded at fair value. The ASU may also make it possible for more
entities to be exempt from the fair value disclosure requirements in ASC 825,
Financial Instruments, as it relates to all their other financial instruments. Swaps
for which the simplified approach is applied are not considered to be accounted
for as a derivative instrument under ASC 815 for purposes of the exemption
outlined at ASC 825-10-50-3. Therefore, if an entity has less than $100 million in
total assets and previously its only derivative instruments were interest rate swaps
for which it has now elected the simplified approach, the entity will no longer have
to provide the additional fair value disclosures. Finally, entities should disclose the
accounting policy for its derivatives, including those swaps for which the
simplified approach is elected, as well as the required disclosures regarding the
change in accounting principle for the year of adoption.

Effective date and transition
The ASU is effective for annual periods beginning after December 15, 2014, and interim periods
within annual periods beginning after December 15, 2015, with early adoption permitted. The
simplified approach may be elected for any qualifying swap, whether existing at the date of
adoption or entered into after that date. The election to apply the simplified approach to an
existing swap should be made upon the adoption of the ASU. If an entity elects to apply the
simplified approach to an existing swap, the condition that the swap’s fair value at the time of
application of this approach is at or near zero need not be considered. Instead, as long as the
fair value of the swap was at or near zero at the time the swap was entered into, the entity may
apply the simplified approach, assuming all other requirements are satisfied.
Reporting entities may apply either the modified retrospective method or the full retrospective
method upon adoption of the simplified approach. Under a modified retrospective approach,
offsetting adjustments are made to the assets, liabilities and opening balances of accumulated
other comprehensive income and retained earnings of the current period presented to reflect
the application of the simplified approach from the date the swap was entered into or acquired
by the entity. Under a full retrospective approach, the financial statements for each prior period
presented are adjusted to reflect the application of the simplified approach to each period from
the date the swap was entered into or acquired by the entity, with offsetting adjustments to the
assets, liabilities and opening balance of the appropriate components of equity of the earliest
period presented.

The Private Company Council (PCC) met on January 28, 2014 and
discussed three of its projects, reaching the following decisions:
Applying variable interest entity (VIE) guidance to common control
leasing arrangements. The PCC reached a final decision that would
allow private companies to opt out of applying the variable interest
entity guidance to common control leasing arrangements when the
following conditions are met:
◦ The private company lessee and lessor entity are under common control.
◦ The private company lessee has a leasing arrangement with the lessor entity.
◦ Substantially all of the activity between the two entities is related to the leasing
activity of the lessor entity with the private company lessee (for this purpose, a
guarantee of the lessor’s debt by the lessee would be considered a leasing
activity).
◦ The leased asset provides sufficient collateralization of the lessor entity’s debt
that was guaranteed by the private company lessee at inception of the debt.

Some of these conditions are different from
those previously agreed to by the PCC because
the previous conditions were considered to be
too restrictive. The final decision reached by the
PCC will be sent to the Financial Accounting
Standards Board (FASB) for endorsement. If the
FASB endorses the final decision, it will become
part of U.S. generally accepted accounting
principles once a final Accounting Standards
Update (ASU) is issued. We do not expect a final
ASU to be issued until sometime in March 2014,
at the earliest.

Accounting for identifiable intangible assets in a business
combination.
The PCC decided to continue its efforts to identify a privatecompany accounting alternative that would reduce the types of
intangible assets recognized separately from goodwill in the
accounting for a business combination. The PCC primarily
discussed an alternative focused on recognizing intangible
assets that are capable of being sold or licensed independently
from other assets of the business. However, there was
agreement that the alternative needed some clarification and (or)
revision. Ultimately, the PCC requested the FASB staff take the
various views expressed by the PCC and provide one or more
refined alternatives for the PCC to discuss at its next meeting,
which is scheduled for April 29, 2014. Even if the PCC reaches a
final decision at its next meeting, we believe it is very unlikely
that a final ASU would be issued before the end of the second
quarter.
Using the combined instruments approach to account for certain receivevariable, pay-fixed interest rate swaps.
The PCC decided that further discussion of the combined instruments
approach was not warranted and removed the project from its agenda.
The combined instruments approach, as proposed in July 2013, would
have provided an option to elect to account for an interest rate swap and
related borrowing as one combined financial instrument if certain
conditions were met, which would effectively result in not recording the
value of the swap on the balance sheet. The PCC decided to discontinue
its discussions on this approach because of some of the conceptual
issues with the approach that were identified in the comment letter
process and because further implementation of the Dodd-Frank Act is
expected to make loan and swap arrangements involving different
counterparties increasingly common for private companies. In addition,
the PCC felt they had provided substantive relief to private companies in
the area of hedge accounting with the recent issuance of ASU 2014-03,
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Discussion and questions