On April 30, the FASB’s Small Business Advisory Committee (SBAC) met to discuss whether the Private Company Council (PCC) should add the topic of stock plan accounting to their agenda.  I listened to the whole discussion–even the parts that were hard to hear–so I figure I’m due a blog entry out of it.

Background

Some of you may recall that, back in February of last year, I blogged about the FASB forming a special group to review whether exceptions or modifications  for private companies should be made to GAAP (“A Different Standard for Private Companies,” February 7, 2012). At the time, the name of the group was the Private Company Standards Improvement Council. It’s not quite clear how we got from there to here (maybe FASB didn’t like the fact that everyone would probably pronounce the acronym “pic-sic”), but the PCC seems to be the current iteration of that group. 

The SBAC provides a forum for the small business community to share ideas, experiences, etc. with the FASB.  The PCC is considering taking up the topic of stock plan accounting–specifically, should the requirements of ASC 718 be modified for private companies or should private companies be exempt from some of the requirements–and asked the SBAC to discuss whether this is a big enough issue for small companies that they (the PCC) should add it to their agenda.

The SBAC Discussion

The FASB, in preparation for the meeting, and the committee did identify a number of concerns for private companies, including:

• Valuation of underlying stock and valuation of options can both be difficult and costly.
• The required disclosures may be onerous for private companies.
• It can be difficult for private companies to interpret and apply the relevant accounting principles without help from paid advisors and there are probably lots of tedious rules that private companies aren’t aware of.
• It can be difficult for private companies to determine whether awards are subject to equity or liability treatment due to various redemption provisions that are often utilized by them (e.g., rights of first refusal, repurchase rights, etc.).
• The accounting implications of awards issued by private companies don’t really become relevant until a CIC and equity awards could be viewed as a cost to the ultimate buyer, rather than a cost to the issuing company.

Despite these concerns, I was surprised to note that the SBAC wasn’t terribly sympathetic to the idea of carving out some exceptions for private companies. The committee seemed skeptical of how widespread usage of stock compensation is among private companies. Some committee members supported the idea of further research into the level of usage; other members simply didn’t believe that enough private companies offered stock compensation to make the topic worthy of the PCC’s time. Also, some committee members felt that because offering stock compensation is optional, those private companies that offer it should be prepared to devote the resources necessary to account for it correctly.

Interestingly, the committee seemed most concerned about the disclosures. This was a surprise to me because I didn’t think private companies even bothered with the disclosures, given that their financial statements aren’t filed with the SEC.  The committee spent so much time talking about the disclosures that I started to think maybe it was a separate agenda item (it wasn’t–I checked).  They suggested that for both small public companies and private companies it would be helpful if FASB provided more assistance related to the disclosures, including possibly providing a checklist of annual vs. quarterly and public vs. private disclosures.  Coincidentally, in preparing for my session, “Alphabet Soup: 10-K, 10-Q, S-K, Where Does Your Stock Plan Info Go? And Why Should You Care?,” Carrie, Elizabeth, and I had just been discussing the confusion over what information companies are supposed to include in their quarterly disclosures.

The recording of the SBAC meeting is no longer available, but you can access the meeting handouts, which include some of the feedback from SBAC members.

– Barbara