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More on the accounting Super Bowl


(This is the second of two parts. Read Part One.)

Instead of trying to revise an entire financial reporting model, the PCC’s approach is to hit certain areas of financial reporting to simplify the accounting. But some areas of focus for the PCC are not finalized:

Accounting for Identifiable Intangible Assets in a Business Combination – The goal is to reduce the number and types of intangible assets that could result from a business combination. The FASB has been directed to perform additional research for discussion in January 2014.

Consolidation of Common Control Leasing Arrangements – Manufacturers will often lease their facilities from an entity that is owned or controlled by the owners of the manufacturer. An accounting standard that was put in place by the FASB, primarily in response to Enron, will generally require consolidation of the leasing company, which many companies believes distorts their financial statements by “grossing up” the assets and liabilities.

The PCC has voted to finalize an alternative for private companies to avoid this accounting and the issue has been sent to the FASB for endorsement. If adopted the accounting alternative would be applicable for the first annual period beginning after December 15, 2014, with earlier application permitted.

Ok, so who wins the private accounting Super Bowl?

The method of accounting that ultimately wins is what works on a practical level, and that has to start with the primary users of financial statements. Although his thoughts may not represent the banking industry as a whole, I believe this insightful comment by James Tanzillo, senior vice president, commercial banking group, Vectra Bank Colorado, will reflect the opinions of many bankers. I asked him if he thinks banks would accept audited financial statements that are not prepared in accordance with GAAP? Tanzillo replied:

“My initial thought would be no, without some regulatory guidance, meaning from the regulators of banks. I could potentially see a scenario where banks require both traditional GAAP and the new GAAP statements being required.

“The idea of Big GAAP versus Little GAAP makes sense and sounds appealing. I just wonder how that can be efficiently incorporated into an industry of standards, with decisions based on historical information. The ambiguity that these changes could introduce may be difficult to initially deal with, until the industry receives some regulatory guidance, “said Tanzillo.

The good news for manufacturers is that we are seeing a directed effort to reduce the complexities of complying with financial reporting requirements, which should  therefore reduce costs. As we can see, rather than attempt to develop an overall separate set of accounting standards for private companies, the PCC has developed an agenda to address certain standards that present the most issues in practice. In our analogy, the AICPA, represented by, let’s say the Seattle Seahawks, made its impact felt, but we live in Bronco country, so it says here that the FASB’s PCC will prevail as the more favorable model. Peyton Manning’s Broncos/PCC win the Super Bowl, at least of private company accounting standards.

I believe that the accounting alternatives approach of the PCC will prevail as the more favorable model as the financial statements will still be considered to be prepared in accordance with U.S. GAAP, whereas the AICPA’s framework will be OCBOA and therefore not U.S. GAAP.

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Greg Pfahl

Greg Pfahl, CPA, is an audit partner in the Denver office of Hein & Associates LLP, a full-service public accounting and advisory firm with additional offices in Houston, Dallas and Orange County. He specializes in financial reporting for complex transactions, including initial public offerings (IPOs), private offerings, and mergers and acquisitions, and serves as a local leader for the firm’s alternative energy practice area. Greg Pfahl can be reached at gpfahl@heincpa.com or 303.298.9600.




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