NASBA: Private Company Standard-Setting Process is ‘Effective and Efficient’by
The American Institute of CPAs (AICPA) isn’t the only accounting organization that has recently praised the Financial Accounting Foundation (FAF) and the groups it oversees for their efforts in improving private company standard-setting.
In a May 11 letter to the FAF Board of Trustees, the National Association of State Boards of Accountancy (NASBA) wrote that the private company standard-setting process used by the FAF, the Financial Accounting Standards Board (FASB), and the Private Company Council (PCC) is “effective and efficient,” and that the current structure “works well and should not be changed significantly.”
“Stakeholders in this space have seen a change in how their needs are perceived as you have listened,” NASBA President and CEO Ken Bishop and NASBA Chair Walter Davenport said in their letter to FAF trustees. “Private company relevancy has taken on heightened importance. Based on what we hear from boards of accountancy, the PCC initiative and its results thus far have been extremely well-received. As a stakeholder, we hope your efforts in taking on private company reporting needs will continue.”
FAF trustees on Feb. 26 issued a request for comment seeking stakeholder input as part of a three-year assessment of the PCC’s effectiveness, accomplishments, and future role in private company standard-setting. The comment period ended on May 11.
The AICPA sent a comment letter to FAF trustees on May 8, urging the FAF to “continue the momentum” of addressing private company financial reporting issues. The letter from AICPA President and CEO Barry Melancon and AICPA Chair Tommye Barie also said the work of the PCC and the FASB has been “extremely well-received and appreciated” by private company constituents.
FAF trustees established the PCC in May 2012 to work with the FASB on determining whether and when to modify US GAAP for private companies. According to the FASB website, the collaboration between the PCC and the FASB has resulted in updates to accounting standards on the following topics:
- Identifiable intangible assets in a business combination
- Applying variable interest entity guidance to common control leasing arrangements
- Certain receive-variable, pay-fixed interest rate swaps (simplified hedge accounting approach)
Also, in July 2013, the PCC and the FASB finalized a decision-making framework that outlines criteria to determine whether and in what circumstances it is appropriate to adjust financial reporting requirements for private companies following US GAAP.
FAF trustees have identified possible improvements to the PCC based on initial informal feedback, including that the PCC should continue transitioning to a body that primarily provides input on active FASB agenda projects.
NASBA echoed comments made by the AICPA in its letter that the PCC should be more than just an advisory body to the FASB.
“We believe the PCC can continue to serve as a critical part of the FASB’s standard-setting process and overall culture. Therefore, any changes that diminish the PCC being regarded as an important component in determining private company reporting standards should be rejected,” Bishop and Davenport wrote. “We believe limiting the PCC’s role primarily to that of an advisor would seriously hamstring the PCC and undermine the FAF’s PCC commitment. In that respect, the PCC’s agenda should not be defined solely by the FASB’s active agenda.”
Bishop and Davenport also recommended that the terms of PCC members be extended from three years to five years.
“Given the technical nature of the FASB standard-setting process, a longer tenure would ensure that the PCC members have the necessary background and comfort with the deliberation process, enabling them to focus on the technical topics,” they wrote. “We agree that an orderly rotation is appropriate and should foster fresh thinking on an ongoing basis.”