FASB Seeks More Feedback on Decision-Making Framework

By Jason Bramwell

June 21 will likely be an important day for the Financial Accounting Standards Board (FASB) and the Private Company Council (PCC).
That day will mark the end of a public comment period on a proposed private company decision-making framework that the FASB and the PCC are developing. The framework is intended to act as a guide for both organizations in determining whether and in what circumstances to provide alternative recognition, measurement, disclosure, display effective date, or transition guidance for private companies reporting under US generally accepted accounting principles (GAAP).
"The guide will help the FASB and the PCC identify the unique needs of users of private company financial statements," John Pappas, senior manager of media relations and constituent communications for the FASB, told AccountingWEB. "It will also help us identify opportunities to reduce the cost and complexity of preparing private company financial statements, in accordance with GAAP."
The Invitation to Comment: Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies was issued on April 15. After the comment period ends in June, the FASB and the PCC are expected to redeliberate and revise the criteria that will be included in the final version of the guide. 
The FASB hopes that the feedback from private company stakeholders, including preparers of private company financial statements and large and small accounting firms, will be beneficial to the initiative.
"We hope that accounting firms will convey to their private company clients that this is an effort to make things more user-friendly while still giving lenders and investors the information they need about private companies," Christine Klimek, senior manager of media relations and executive communications for the FASB, told AccountingWEB. "The end goal is always to improve financial reporting and to provide information that is relevant to the users of private company financial statements." 
Initial Invitation to Comment
This is the second time in less than a year that the FASB has sought input from private company stakeholders on the decision-making framework. In July 2012, FASB staff issued an initial Invitation to Comment in which stakeholders were asked three key questions:
  1. What should the framework look like?
  2. What factors should differentiate a private company from a public company?
  3. What other criteria should be included in the framework?
"The idea is not to create two sets of GAAP. The intent is to consider private company constituent feedback in identifying alternatives for private companies within US GAAP," Klimek says.
According to Pappas, the FASB received fifty-seven responses – mostly from representatives of private companies, banking and financial institutions, and large and small accounting firms – during the initial invitation to comment. 

What Feedback Is the FASB Looking to Receive?

There are five key questions that the FASB and the PCC are asking private company stakeholders to consider and answer during the 2013 Invitation to Comment:

1. Do you believe that all the questions in the recognition and measurement section of this guide are necessary to be included in the questions for the FASB and the PCC to consider in identifying alternatives for private companies relating to recognition and measurement, or could some of the questions be deleted?
2. Do you agree that this guide appropriately considers industry-specific accounting guidance for private companies? That is, should private companies follow the same industry-specific guidance that public companies are required to follow in instances in which the FASB and the PCC determine that the guidance is relevant to financial statement users of both public companies and private companies operating in those industries? If not, why?
3. Do you think factors other than user relevance, such as cost and complexity, should be considered when the FASB and the PCC are determining whether or not to provide alternatives within industry-specific guidance?
4. Do you think that industry-specific accounting considerations should be different between (a) recognition and measurement and (b) disclosure?
5. Do you agree that a private company generally should be eligible to select the alternatives within recognition or measurement guidance that it deems appropriate to apply without being required to apply all alternatives available to private companies within recognition and measurement?
In December 2012, the FASB met with the PCC for the first time to discuss the feedback that was provided during the initial comment period. The Financial Accounting Foundation (FAF) – the FASB's parent organization – created the PCC in May of that year to work with the FASB to determine whether and when to modify GAAP for private companies.
"We told the PCC, 'Here's our initial proposal for a framework, and this is what we've heard from stakeholders about how to improve the framework and what they'd like to see,'" Klimek recalls. "This framework was always intended to guide the FASB and the PCC in working together. It's important that the PCC deliberate with us so FASB doesn't finalize this thing and say, 'Ok, here's the framework we're going to use.'"
The FASB and the PCC developed the proposed provisions contained in the 2013 Invitation to Comment based on their discussions at the PCC's February 2013 meeting. As a result of those discussions, two significant changes were made to the original FASB staff proposal:
  1. Removing the industry-specific presumption by having the FASB and the PCC consider whether the same industry-specific guidance is relevant to users of financial statements of both public companies and private companies.
  2. Allowing a private company to select the alternatives within GAAP for recognition or measurement guidance that it deems appropriate, without having to apply all the alternatives within GAAP for recognition and measurement.
"Now that the deliberated proposal is out there, we're now looking for feedback [during the second comment period] from stakeholders on what they think," Klimek says. "If we receive a lot of feedback that says we need to do more research in other areas, then we may do more outreach with stakeholders. Or, if they generally like what's being proposed and there's very little to change, then we'll proceed with doing a final issuance of the framework."
FASB Expectations
Pappas and Klimek both hope the 2013 Invitation to Comment generates as much feedback as the initial public comment period last July.
"I think we expect about the same number of comments as last year, but it's hard to say in advance," Klimek says. "This is an issue that has generated a lot of interest. The FAF and the FASB have done a great deal in the past two years to address it, so we're hoping to get as much feedback as possible."
Those interested in providing comments to the FASB during the 2013 Invitation to Comment can do so here. The deadline is June 21.

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