Financial Accounting Standards Board chair Leslie Seidman has been reviewing the suggestions that have been coming in about the proposed Private Company Standards Improvement Council while awaiting a decision on how much authority her board will have over the new council.

FASB and its parent organization, the Financial Accounting Foundation, are holding a series of roundtable meetings with private company representatives around the country to talk about the FAF’s proposal for the creation of the new council (see FAF Proposes New Council for Private Company Accounting Standards).

“The FAF has scheduled four roundtables in different cities around the country to provide an opportunity for the FAF board of trustees to have a dialogue with interested individuals to discuss the comments that they’ve made in response to the FAF proposal to put in place a new council to focus on private company issues,” Seidman said in an interview with Accounting Today staff on Friday. “The FAF has received over 6,500 letters at this point in time expressing quite a wide range of views. Many of them include very specific suggestions. Whether you’re in support of the proposal or not in support of the proposal, I think the FAF is very interested in continuing the dialogue with stakeholders so they can make an informed decision.”

The FAF is expected to issue a decision on the structure of the new council after the last roundtable meeting occurs on March 1, probably in the second quarter of the year. The comment period ends on Saturday, Jan. 14. FASB has been paying attention to the comments the FAF has received.

“Each of us has been reading the letters as they come in, but we actually have assigned staff people to do an analysis of the letters for us,” said Seidman. “One thing that I have learned reading the letters is that some people are not aware of some of the things that we are already doing, so at a minimum we have an opportunity to communicate more broadly about those efforts. But the other things that we have been working on in the meantime, irrespective of any structural change that may take place, have to do with the development of a framework for deciding when there are unique private company issues that would warrant a different accounting or disclosure approach, so we’ve been working with a resource group to develop modules on particular topics such as disclosure, effective date, transition, etc. Our goal is to put together a draft framework that we would expose for public comment, irrespective of any decision on this other front, but then probably pause until there is a decision made on that front because it’s so important to have the buy-in of that group so that we can move forward with a common understanding.”

Seidman noted that FASB is also working on what is the appropriate definition of a private company. She said there were six different definitions for private companies in the FASB Accounting Standards Codification because every time the board approached the issue it had a different objective in mind.

“We’re planning to come up with a more coherent approach to that because it will be extremely important in determining who would qualify for any differences that are ultimately agreed upon,” said Seidman.

In looking through the comments and evaluating the feedback from the roundtables so far, FASB has also been looking for any actions it can take in the meantime to make some simplifications for private companies before a decision is made on the structure of the proposed council.

Seidman noted that FASB has recently added a project on fair value disclosures to determine whether there is a way for the board to streamline such disclosures for private companies. FASB also issued a standard last year on goodwill impairment in response to feedback from private companies; the new standard also applies to public companies.

Seidman noted that the proposed structure for the PCSIC would have several advantages over the Private Company Financial Reporting Committee, which it will replace. She praised the members of the PCFRC for “doing a great job on a volunteer basis, for bringing us excellent and timely feedback on our proposals. They’ve responded to almost every single proposal that we’ve issued since they were formed and their feedback has been greatly valuable.”

But the proposed council would have a number of advantages, including staff resources from FASB and a greater level of interaction with the board.

“We would anticipate full FASB staff support for the PCSIC,” she said. “That means that our staff would be preparing the analysis, the memos, everything that group needs to make decisions. That is not the case with PCFRC. Each of them relies on their own support at their own firms to do whatever analysis is necessary for them to then come together and advise us on a particular matter. So, in other words, they would have much more support in the process and the exact same materials that the board members would use to make a decision.”

FASB board members would also participate in the PCSIC meetings in order to have an ongoing dialogue as the issues are being debated, Seidman added.

“In the early days of the PCFRC, I never met a PCFRC member until, I think, the organization had been running for two or three years,” she said. “It was almost by design set up to be an independent organization, whereas this is very much intended to be an integrated organization so that there is a free flow of ideas and the board members can hear firsthand what the PCSIC members are saying and vice versa, which I think puts you in the best possible position to come to a consistent answer when it’s appropriate to have a consistent answer.”

She noted that the PCFRC does not vote, but only provides recommendations to the board. She said the PCSIC would have a significantly higher level of authority. Instead of being overseen by FASB, as the PCFRC is, the PCSIC would be overseen by the FAF. The PCSIC would also be able to vote on recommending differences in standards for private companies. Also unlike the PCFRC, the PCSIC would operate with a framework for when it is appropriate to establish differences for private companies.

“To me, that is essential to the path forward regardless of whether there is a structural change,” said Seidman. “But in the event that a PCSIC is set up, or a separate board is set up, I think it’s essential to have a framework that’s agreed upon as to when differences are warranted. Otherwise, I’m concerned that history is going to repeat itself.”

The American Institute of CPAs has been pushing for a separate board for private company standards overseen by the FAF, but independent of FASB, and it has been encouraging CPAs to write to the FAF with comments supporting a more independent board. Under the FAF proposal, the PCSIC would be chaired by a FASB board member, and FASB would be able to accept or reject any of the PCSIC’s recommendations. Many of the comment letters that have come to the FAF about the new council have objected to FASB’s ability to reject the PCSIC’s recommendations.

“It is a common point being commented upon in the letters coming in to the FAF,” Seidman acknowledged. “As it applies to all of the elements of that proposal, people are making suggestions, they are raising issues with various aspects of it and making suggestions for how to improve it, and I know that’s one of them.”

Seidman also discussed the status of FASB’s convergence efforts with the International Accounting Standards Board, and acknowledged that a number of projects had been delayed. She noted that the leasing standards, for example, would not be finalized until 2013. Financial instrument impairment probably would not be ready until early next year as well, even though FASB and the IASB have recently agreed upon at least the “skeleton” of an “expected losses” model as opposed to “incurred losses.” But they still need another meeting to flesh out that model. She believes that the projects for investment properties, investment companies, and consolidations should be resolved by the end of 2012. Revenue recognition could feasibly be finalized in 2012. The two boards are still far apart on the insurance contract project, and Seidman said a final standard would probably not be ready until 2013 at the earliest.

She hopes to avoid the arrangement that the two boards made with the recent offsetting standards in which financial statement preparers were advised to add disclosures to help investors bridge the gap between U.S. GAAP and International Financial Reporting Standards (see FASB, IASB Make Progress on Netting, Leasing and Impairment Standards).

“My priority at this point in time is to try and reach the same conclusions with the IASB,” she said. “We are not finished on the priority projects at this point in time. Revenue recognition we are converged, leasing we are converged, impairment we are converged. And it’s my intention to do everything I can to end up converged on insurance. I think it’s premature to talk about a disclosure solution for anything that we are actively working on.”

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