After seeking and considering extensive public comment, the Financial Accounting Foundation (FAF) Board of Trustees today established a new body to improve the process of setting accounting standards for private companies.
The new group, the Private Company Council (PCC), will have two principal responsibilities. Based on criteria mutually developed and agreed to with the Financial Accounting Standards Board (FASB), the PCC will determine whether exceptions or modifications to existing nongovernmental U.S. Generally Accepted Accounting Principles (U.S. GAAP) are necessary to address the needs of users of private company financial statements. The PCC will identify, deliberate, and vote on any proposed changes, which will be subject to endorsement by the FASB and submitted for public comment before being incorporated into GAAP. The PCC also will serve as the primary advisory body to the FASB on the appropriate treatment for private companies for items under active consideration on the FASB's technical agenda.
"The Trustees believe that the plan approved today will improve the standard-setting process and give private company stakeholders additional assurance that their concerns will be thoroughly considered and addressed," said FAF Board of Trustees Chairman John J. Brennan following a meeting of the Trustees in Washington DC. "This structure represents a significant improvement over our original proposal because of the very valuable suggestions we received from a broad cross section of concerned and interested constituents."
FAF President and CEO Teresa S. Polley said: "The plan approved by the Trustees strikes an important balance. On one hand, the plan recognizes that the needs of public and private company financial statement users, preparers, and auditors are not always aligned. But at the same time, the plan ensures comparability of financial reporting among disparate companies by putting in place a system for recognizing differences that will avoid creation of a `two-GAAP' system."
The private company plan approved today generally follows the outline of the initial Trustee proposal announced last October, but includes several significant changes and improvements. In response to stakeholder concerns, the Trustees changed the process through which FASB considers Council recommendations for private company exceptions or modifications to GAAP from one of ratification to one of endorsement. The final plan stipulates that the Council Chair will not be a FASB member; that the Council will hold meetings more frequently than originally proposed; and that its size will be smaller than initially suggested.
"The establishment of the PCC will help the FASB improve upon the efforts already under way to better serve the needs of private company financial statement users, preparers, and practitioners," said FASB Chairman Leslie F. Seidman.
Key elements of the Private Company Council responsibilities and operating procedures include:
Agenda Setting. Working jointly, the PCC and the FASB will mutually agree on criteria for determining whether and when exceptions or modifications to GAAP are warranted for private companies. Using the criteria, the PCC will determine which elements of existing GAAP to consider for possible exceptions or modifications by a vote of two-thirds of all sitting members, in consultation with the FASB and with input from stakeholders.
FASB Endorsement Process. If endorsed by a simple majority of FASB members, the proposed exceptions or modifications to GAAP will be exposed for public comment. At the conclusion of the comment process, the PCC will redeliberate the proposed exceptions or modifications and forward them to the FASB, who will make a final decision on endorsement, generally within 60 days. If the FASB endorses the proposals, they will be incorporated into GAAP. If the FASB does not endorse, the FASB Chairman will provide the PCC Chair with a written explanation, including possible changes for the PCC to consider that could result in FASB endorsement.
Membership and Terms. The PCC will comprise 9 to 12 members, including a Chair, all of whom will be selected and appointed by the FAF Board of Trustees. The PCC Chair will not be a FASB member. Membership of the PCC will include a variety of users, preparers, and practitioners with substantial experience working with private companies. Members will be appointed for a three-year term and may be reappointed for an additional term of two years. Membership tenure may be staggered to establish an orderly rotation. The PCC Chair and members will serve without remuneration but will be reimbursed for expenses.
FASB Liaison and Staff Support. A FASB member will be assigned as a liaison to the PCC. FASB technical and administrative staff will be assigned to support and work closely with the PCC. Dedicated full-time employees will be supplemented with FASB staff with specific expertise, depending on the issues under consideration.
Meetings. During its first three years of operation, the PCC will hold at least five meetings each year, with additional meetings if determined necessary by the PCC Chair. Deliberative meetings of the PCC will be open to the public, although the Council may hold closed educational and administrative sessions. Most of the meetings will be held at the FAF's offices in Norwalk, Connecticut, but up to two meetings each year may be held elsewhere. All FASB members will be expected to attend and participate in deliberative meetings of the PCC, but closed educational and administrative meetings may be held with or without the FASB.
Oversight. The FAF Board of Trustees will create a special-purpose committee of Trustees, the Private Company Review Committee (Review Committee), which will have primary oversight responsibilities for the PCC. The Review Committee will hold both the PCC and the FASB accountable for achieving the objective of ensuring adequate consideration of private company issues in the standard-setting process. The Review Committee will be chaired by a Trustee with substantial experience in private company accounting issues. Oversight activities will be ongoing, and will include monitoring of PCC meetings, among other activities.
FAF Trustees' Three-Year Assessment. The PCC will provide quarterly written reports to the FAF Board of Trustees. The FAF Trustees will conduct an overall assessment of the PCC following its first three years of operation to determine whether its mission is being met and whether further changes to the standard-setting process for private companies are warranted.
The complete report establishing the PCC, including background materials, key discussion issues considered by the Trustees, and PCC responsibilities and operating procedures, will be available on the FAF website next week. The FAF Board of Trustees will issue a call for nominations for members of the PCC via the FAF website
in the next few weeks.
Source: FAF Press Release