FAF Revises Procedures for Private Company Councilby
A report released on Nov. 18 by the Financial Accounting Foundation (FAF) Board of Trustees details changes that will be made to strengthen the effectiveness of the Private Company Council (PCC).
The report culminates a three-year review of the 10-member PCC, which advises the Financial Accounting Standards Board (FASB) on the appropriate accounting treatment for items under the board's consideration and on possible alternatives within US GAAP that address the needs of private company financial statement users. FAF trustees established the PCC in 2012.
The objective of FAF trustees' review was to determine whether the PCC was meeting its primary responsibilities and mission, and to provide an assessment of the PCC's continuing role and effectiveness.
Last February, the FAF â which oversees the FASB and the PCC â asked stakeholders for input on whether the PCC has improved the private company standard-setting process over the past three years.
FAF trustees received 52 comment letters, including responses from practitioners, financial statement preparers, and industry organizations, such as the American Institute of CPAs and the National Association of State Boards of Accountancy.
As a result, FAF trustees amended the Responsibilities and Operating Procedures of the PCC to reflect the improvements recommended by the accounting and financial reporting community.
âMost stakeholders expressed support for the PCC and agreed that it has been successful in addressing the needs of users of private company financial statements while reducing costs and complexity for preparers,â FAF Chairman Jeffrey Diermeier said in a written statement. âStakeholders also suggested improvements, including increased transparency around the PCC's views on active FASB agenda projects and more robust communication of those views to the FASB and the public.â
After considering the feedback, FAF trustees made the following decisions:
PCC maintains ability to propose private company alternatives. The PCC will maintain the ability to develop proposed accounting alternatives using the guidance provided in the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies.
PCC should increase effectiveness of its advisory role. To increase the PCC's effectiveness in providing the FASB with private company perspectives on the FASB's active agenda projects, FAF trustees said that:
- The PCC and FASB members and staff should communicate regularly with each other on FASB projects for which the PCC is advising.
- Project-specific working groups, which may include non-PCC members, should be established at the discretion of the PCC chair so that PCC members can effectively advise the FASB on the impact its proposals may have on private companies.
- The PCC's input on FASB agenda projects, including an explanation of the views of its members, should be articulated clearly and communicated to private company stakeholders, along with FASB's consideration and disposition of that input.
- The FASB and the PCC should ensure that stakeholders are kept informed in a timely and transparent manner about PCC and FASB activities related to private companies.
PCC to establish a Technical Agenda Consultation Group. A PCC Technical Agenda Consultation Group should be established, comprising two FASB members, the FASB technical director, and a subset of PCC members, to discuss whether it is more efficient and effective for the PCC or the FASB to take the lead on a potential project and add the project to its technical agenda. After consulting with the PCC consultation group, the PCC will decide whether to add a project to its technical agenda.
PCC will retain its size and composition. The PCC will retain its size and composition (chairperson, three users, three preparers, and three practitioners) and the term lengths of its members. To establish an orderly rotation and maintain appropriate continuity on the PCC, six of the existing PCC members were appointed to a second term and those terms were staggered.
PCC oversight to begin transition. FAF trustees' Private Company Review Committee will begin to transition its PCC oversight responsibility to the trustees' Standard-Setting Process Oversight Committee in 2016. The trustees expect that the oversight committee will assume PCC oversight responsibility no later than the end of 2017.
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