Accounting for Private Company Interest Rate Swaps: An Overview With Planning Strategies

Abstract

The Financial Accounting Standard Board's (FASB) Private Company Council (PCC) was created in 2012 to improve the accounting standard‐setting process for private companies. Due to influence from PCC, the FASB issued Accounting Standards Update No. 2014‐03 in January 2014 to address accounting for interest rate swaps for certain private companies. The issue addressed was the complexity of complying with ASC 815 rules that are highly detailed and difficult to implement. The FASB Update provides an alternative, simplified hedge accounting, for receive‐variable, pay‐fixed interest rate swaps if certain criteria are met. This accounting method allows private companies to more easily classify these interest rate swaps as cash flow hedges, which will reduce income volatility and aid in compliance. This article provides an overview of the provisions of this update and offers planning strategies for maximizing the benefits and minimizing the costs of receive‐variable, pay‐fixed interest rate swaps. © 2017 Wiley Periodicals, Inc.