The Financial Accounting Foundation is poised to release the proposals of its trustee working group for changing the structure and process of the Financial Accounting Standards Board's oversight of standards for private companies and nonprofits.

In an exclusive interview with Accounting Today in mid-September, Teresa Polley, president and CEO of the Financial Accounting Foundation, which oversees FASB and the Governmental Accounting Standards Board, indicated that the proposals for structural changes at FASB should be out by the end of September or early October. There will then be a 60-day or longer comment period to give constituents a chance to provide feedback, and any changes in the structure of the board would likely happen in 2012.

The proposals come in response to recommendations from the Blue Ribbon Panel on Standard-Setting for Private Companies, which issued a report earlier this year calling for the establishment of a separate standard-setting board for privately held companies.

However, the overhaul actually dates back prior to the establishment of the Blue Ribbon Panel last year by the FAF, the American Institute of CPAs and the National Association of State Boards of Accountancy. When John Brennan was elected chairman of the FAF in February 2009, according to Polley, the trustees began doing more outreach to private companies and their stakeholders.

"The private company issue has been discussed for decades," Polley said. "When Jack Brennan was appointed, we conducted a listening tour. We went all around the country and listened to

various constituents about what do they think of the FASB, what do they think of the GASB, and also what do they think of the FAF, which frankly most of them had never heard of. But one of the things we did hear was that private companies felt they were not getting enough consideration in the standard-setting process. So the first step in the process was to create the Blue Ribbon Panel in conjunction with the AICPA and NASBA. They went through the process, which took approximately a year. They gave their findings to the board of trustees at their February meeting. Following that, the trustees created a working group of about half a dozen or so trustees and some senior staff at the FAF, and we've been conducting outreach since then."

Polley noted that the FAF working group met with representatives from small CPA firms and the Big Four, along with preparer groups, investor representatives, large and small banks, and all of the FASB advisory groups. "The trustees are now pulling all of this input together, doing their own thought process, and what I would anticipate is that by the end of this month or early next month will be coming out with their proposal on potential structural changes, process changes, to the standard-setting process, to more fully consider non-public-entity issues," she explained.

She noted that the recommendations will encompass not only standards for private companies, but also for not-for-profits, and that the possibilities under consideration run a wide range, from leaving FASB the way it is to creating a separate standard-setting body under the FAF.

"Remember, the Blue Ribbon Panel focused on private companies, but the trustees focused on getting information both on private companies and on not-for-profit organizations," said Polley. "So their proposal was going to look at both. Once they issue that, I would anticipate a comment period of at least 60 days, and possibly longer than that to enable constituents to have the time to comment."

Polley indicated that if the changes are made, they wouldn't happen until next year. "The trustees will consider the comments that they have received and then make a decision as to whether they will implement or make changes, and that would be the final step, obviously," she said. "If changes are made, they will be implemented some time in 2012."



Speaking more broadly, Polley pointed out some of the things that the foundation has been doing to improve its operations, and those of the boards it oversees.

She noted, for instance, that the decision late last year to expand FASB's board from five members to seven - reversing a reduction made in 2007 - has achieved its purpose.

"When the trustees made the decision to go down to five, it made a lot of sense - it looked like we were on a downward trajectory toward IFRS adoption, so having the FASB go down to five made sense, to have them be a little more nimble, able to act more quickly, etc.," she said. "Fast-forward three or four years later, obviously you had the financial crisis take place, the slower pace of the projects, the very heavy project load that the FASB is carrying, the constituent feedback that they felt there was not a sufficient variety of perspectives around the table - you know, you're setting GAAP for the United States and you only have five people deciding that - and the trustees evaluated all of those considerations."

The expansion "gave us an opportunity, frankly, to bring someone who has primarily private company experience, so we now have that perspective brought to the board deliberations, and it gave us an opportunity to add an investor, so we brought two more key perspectives to the table at a time when they were working extremely hard, and having two more people to think those projects through would be very helpful," she explained. "It's been a seamless transition, and all returns would say that it's been a success and what we wanted to accomplish."

Adding private company and investor perspectives is particularly useful, as those are the two constituencies that the standard-setters hear the least from. "Getting investors and users of financial statements to weigh in is always a challenge, and we're always looking for ways to improve that," Polley said. "We have a team on the FASB who's charged with user outreach, and they've been doing a great job over the last several years in trying to increase that." Trustees and board members with backgrounds in investment and statement use have also been very helpful in getting investors to talk, she added.

Feedback from private companies and small public companies is also difficult to elicit. "At the SEC roundtable in early July, the small public companies basically said, 'If you think I'm going to write a comment letter, you've got to be kidding, because I don't have the time,'" Polley said. "I think that's the challenge we have with small public companies and with private companies. We've tried to create an easier method for private companies to weigh in on various proposals by just going to the Web site, and there's a portal you can go to where you don't have to write a formal comment letter, but you can still weigh in a formal way without writing a formal comment letter."

On the government front, Polley discussed a recent initiative of the FAF to have a group of independent academics do some research on the scope of GASB's mission.

The project, which was spurred on by the trustees, as well as some controversies over certain recent GASB projects, will involve talking with all kinds of constituents and putting out a survey, with the goal, according to Polley, of finding out, "What are the guardrails of financial reporting, and where within those guardrails does the GASB's mission fall? If you think about the basic financial statements and notes, some people would say that's clearly within the GASB's mission, and then to the extent that they're putting out other guidance - for example, the guidance on Service Efforts and Accomplishments, and the project underway on fiscal projections, which has caused some controversy - so the researchers are trying to find out what type of information users want, and do you need standards, and if there should be standards or guidelines, who is the best source of setting those guidelines?"

The researchers will report their findings - but no recommendations - to the FAF trustees by the end of the year. The trustees will then look at GASB's mission in light of the researchers' report.

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