New Private Company Standards

1. New Private Company Standards Developed and presented by Samuel A. Monastra, CPA March 2014

2. New Private Company Standards • 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.

3. New Private Company Standards • 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:

4. New Private Company Standards • 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

5. New Private Company Standards 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.

6. New Private Company Standards • Scope Private companies include 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 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).

7. New Private Company Standards • 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.

8. New Private Company Standards • 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.

9. New Private Company Standards • 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.

10. New Private Company Standards • 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.

11. New Private Company Standards 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).

12. New Private Company Standards • 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.

13. New Private Company Standards • 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.

14. New Private Company Standards 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.

15. New Private Company Standards 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

16. New Private Company Standards 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.

17. New Private Company Standards 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).

18. New Private Company Standards 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).

19. New Private Company Standards 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.

20. New Private Company Standards 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.

21. New Private Company Standards 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.

22. New Private Company Standards 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.

23. New Private Company Standards 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.

24. New Private Company Standards 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 350-20-40-1 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

25. New Private Company Standards 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

26. New Private Company Standards 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.

27. New Private Company Standards 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.

28. New Private Company Standards 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

29. New Private Company Standards 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.

30. New Private Company Standards 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.

31. New Private Company Standards • 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.

32. New Private Company Standards • 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.

33. New Private Company Standards 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, pay-fixed interest rate swaps used to convert variable-rate borrowings to fixed-rate borrowings.

34. New Private Company Standards • The benefits of an entity electing the simplified approach for qualified swaps and borrowings include: The ability to make the election on a swap-by-swap 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

35. New Private Company Standards • 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.

36. New Private Company Standards • 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 fixed-rate 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).

37. New Private Company Standards • 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. Forward-starting 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.

38. New Private Company Standards • 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.

39. New Private Company Standards • 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).

40. New Private Company Standards • 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 variable-rate 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.

41. New Private Company Standards • 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.

42. New Private Company Standards • 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.

43. New Private Company Standards • 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.

44. New Private Company Standards • 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.

45. New Private Company Standards • Accounting for identifiable intangible assets in a business combination. The PCC decided to continue its efforts to identify a private-company 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.

46. New Private Company Standards Using the combined instruments approach to account for certain receive-variable, 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,

47. New Private Company Standards • Discussion and questions