Private Company Council’s Performance Up for Review by FAF Trusteesby
Nearly three years after it announced the creation of the Private Company Council (PCC), the Financial Accounting Foundation (FAF) Board of Trustees is asking financial reporting stakeholders for feedback on whether they think the PCC has helped improve the process of setting accounting standards for private companies.
The FAF board on Feb. 26 issued a request for comment seeking stakeholder input as part of an assessment of the PCC’s effectiveness, accomplishments, and future role in private company standard-setting. The document asks stakeholders to answer 10 questions about the PCC. Written comments can be sent via email to [email protected] by May 11.
The FAF, the parent organization of the Financial Accounting Standards Board (FASB), announced the creation of the PCC in May 2012 and gave it two principal responsibilities:
1. Work jointly with the FASB to mutually agree on a set of criteria to decide whether and when alternatives within US Generally Accepted Accounting Principles (GAAP) are warranted for private companies. Based on those criteria, the PCC will review and propose alternatives within US GAAP to address the needs of users of private company financial statements.
2. 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.
FAF trustees said in May 2012 that they would conduct an overall assessment of the PCC following its first three years of operation. According to the FASB website, the collaboration between the PCC and the FASB has resulted in updates to accounting standards on the following four 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.
“The PCC has made significant progress in addressing issues that are important to private companies and the wider financial reporting community,” FAF Chairman Jeffrey Diermeier said in a written statement. “Going forward, the PCC will need to balance the demands of its role as an advisory body to the FASB with its responsibility to identify and help resolve private company financial accounting and reporting issues that arise in current GAAP. We are seeking stakeholder input to help determine whether the identified improvements will help the PCC achieve this balance.”
FAF trustees identified possible improvements to the PCC based on initial informal feedback, some of which the PCC and the FASB have started to implement. Those improvements include:
- The PCC should continue to establish working groups for select FASB projects.
- There should be a consistent and continuous feedback mechanism among the PCC members and FASB members and staff on active FASB projects.
- The PCC should continue transitioning to a body that primarily provides input on active FASB agenda projects.
- PCC members should participate as their schedules allow in outreach performed by the FASB with private company stakeholders.
- The FAF Appointments and Evaluations Committee should continue to seek individuals that have the requisite profile to advise the FASB on active projects.
Some of the questions the request for comment document asks stakeholders to answer include:
- Has the PCC been successful in proposing alternatives within US GAAP that address the needs of private company financial statement users?
- Has the PCC been effective as an advisory body to the FASB?
- What organizational or procedural improvements to the PCC are needed?
- Are further changes to the standard-setting process for private companies warranted?