Financial Accounting Standards Board chair Leslie Seidman argued Tuesday that the board has been increasing its outreach to private company accountants as FASB awaits a report from the trustees of its parent organization on whether oversight of private company accounting standards should be handed to a separate board.
“A real priority of the FASB in recent years has been to try to be more responsive to the concerns that our private company constituents have expressed about the unique needs that the users of their financial statements have,” said Seidman in an interview with members of the Accounting Today staff. “Over the last several months and years, in fact, we’ve been trying to change our processes and our organizational approach to being more responsive to those concerns.”
FASB has been holding more roundtable meetings with constituents from private companies, particularly on the West Coast, and added a new board member, Daryl Buck, who as CFO of grocery retailer Reasor’s Holding Company, has extensive experience in the private company sector. FASB has also dedicated more of its staff members to doing outreach to private companies, and it has increased the participation of its board members in meetings with the Private Company Financial Reporting Committee, which has traditionally been tasked with bringing the concerns of private companies to the attention of FASB.
The board also recently added a portal for private companies to its Web site and has come out with a differential framework for private company standards in response to a report from the Blue-Ribbon Panel on Standard Setting for Private Companies. The Blue-Ribbon Panel report had recommended that a separate board be established for private company accounting standards under the oversight of the Financial Accounting Foundation, which oversees FASB and the Governmental Accounting Standards Board.
A trustee working group at the FAF has been studying the recommendations in the Blue-Ribbon Panel report and is expected to come out with its own proposals on changes to the standard-setting process for both private companies and not-for-profit organizations in the next few weeks (see FAF Group Plans Changes in Accounting Standard-Setting).
The American Institute of CPAs has been urging the creation of a separate standards board for private companies, saying that the changes made by FASB had been considered by the Blue-Ribbon Panel before it issued its recommendations. Those changes were judged by the Blue-Ribbon Panel to be “insufficient,” according to AICPA president and CEO Barry Melancon (see Letter-Writing Campaign Supports Private Company Accounting Standards Board).
Seidman contended that many of the changes at FASB toward private companies had been underway even before the creation of the Blue-Ribbon Panel, while others were made in response to the report.
“Something that’s often overlooked is that there were a number of recommendations to the FASB and the FAF in the Blue-Ribbon Panel report, and I would say other than the specific recommendation to set up a new standard-setting board, we had either been making progress on many of those recommendations, or we took to heart those recommendations and have either addressed them or are still working to address them,” said Seidman. “So I think it’s really important to emphasize that the FASB has taken to heart the recommendations in the Blue-Ribbon Panel report and have already made a number of very positive improvements that had been underway or were directly in response to the suggestions made by the Blue-Ribbon Panel.” Among the suggestions they heard were providing a deferred effective date for some standards for private companies.
Seidman noted that the board plans to take into account the concerns of private company users in the standard-setting process and she acknowledged some failings on the part of FASB in the past. “It’s going to be very, very important for us moving forward to develop a set of criteria that we would use as part of our standard-setting activities to determine whether and when we would identify differences for the standards we set for private companies versus public companies,” said Seidman. “We have a really strong commitment to getting that right. I think if I were to diagnose what the issue has been in the past, it’s that we didn’t have a common understanding with the private company sector as to when there should be differences. And I think that expectation gap has been very frustrating for people, including us. It’s really the reason that people don’t think that we have been as responsive to their concerns as we could have been. So I think the solution to any issues having to do with private companies involves a meeting of the minds about what the criteria are going to be for identifying when differences should exist.”
She added that staff members at FASB have now been dedicated to evaluating standards from the perspective of private companies and nonprofits, under the leadership of FASB assistant director Jeffrey Mechanick.
“As we’re going through issues, we’re evaluating the perspective of private companies and other nonpublics at the same time and having that real-time discussion at the board, whereas I think in the past sometimes it was handled as an afterthought as significant cost-benefit issues were raised,” said Seidman. “So we have changed the people who are assigned to evaluate private company issues and also are trying to modify our processes so that we’re having a more focused, real-time evaluation of the issues as we go through our deliberations.”
Buck noted that a team of approximately nine staffers at FASB have primarily private company background experience and work under Mechanick to address private company issues. “We have embedded at least one of these folks into each of the various project teams,” said Buck. “As the work progresses on the life of a project, on a daily basis, the views of private companies are being heard and debated and discussed and understood so that when the memos are developed by the staff for presentation to the board, those views can be brought out and we can be considering that private company point of view along the way, as [opposed] to having it just be at the end of the project. So I think that’s a very important improvement in the process.”
Seidman noted that the recently approved standard on goodwill impairment testing benefited from the feedback the board heard from roundtable participants from the private companies (see FASB Issues Goodwill Impairment Testing Standard).
“They gave us some very important feedback about the standards that were causing them grief,” she said. “One of them that was mentioned a number of times was the goodwill impairment issue. That was among the sources of outreach that led to us adding that project to the agenda and then ultimately issuing a standard, the goal of which is just to significantly reduce the cost of complying with the standard. We didn’t change the outcome of applying the standard one whit, so it doesn’t have any implications on the information that is ultimately provided, just taking cost out of the system.”
More recently, FASB added another short-term project to its agenda, on intangible assets, in response to similar feedback (see FASB Adds Intangible Assets Project to Agenda).
The roundtable discussions have been particularly useful in getting feedback from private companies about the standards, according to Mechanick, and are helping the board adjust the decision-making process. “We spent roughly the first half of each of those roundtables talking about who the users were of private company financial statements and what were they using them for, and that was a really important input into what we’re doing on this decision-making framework,” he said.
Some of the most interesting feedback came in a dynamic roundtable with not-for-profit participants, and FASB expects to take the views of nonprofits into account more when setting standards. FASB also learned that it needs to deal more directly with some of its advisory groups, particularly the Private Company Financial Reporting Committee.
“I think our relationship with the PCFRC has improved over the years,” said Seidman. “I’ve already identified one issue that in retrospect I wish we had handled differently, which was to set up a framework to have a common objective going forward, which is underway and we do plan to develop. Another issue in retrospect, I wish there had been better integration of the PCFRC and the FASB staff and board so that we would have met together on a regular basis as opposed to it being handled more as a separate advisory committee that we had occasional interaction with. We’ve remedied that. We now have a couple of our staff members and a board member attend every single one of their meetings, and then we’re trying to bring more of their meetings to Norwalk so that the whole board can participate in that. The face-to-face meetings have tremendous value because there’s really no substitute for a conversation. You can read a letter, but then you’re relying on your ability to interpret what the person meant and draw the correct conclusion from it, whereas if you’re sitting across the table from someone, you can probe and make sure that you understand, so that you can use that information to make an informed decision.”
Mechanick noted that, under the initiative of PCFRC chair Judy O’Dell, FASB now has a PCFRC point person on each of the projects. “That really gives us more of a link to the real-world perspective that the folks from that committee can bring, from their companies and firms,” he noted.
Buck added that FASB has also been seeking input from private company constituents through a simplified feedback form on the FASB Web site that allows them to avoid the need to write a detailed comment letter. “One thing that we’ve heard quite a bit is that because of resource constraints, it’s difficult for private companies to respond with formal comment letters on the proposals that we put out, so recently we initiated an electronic response form that can be accessed online,” said Buck. “As opposed to taking the time to prepare a formal comment letter and sending it in, they have the opportunity to quickly give some comments online to some brief questions, and that’s been well received. Anything that we can do to get more input from private companies, that’s what we want to do.”
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