The Private Company Council that the Financial Accounting Foundation created three years ago appears to be fulfilling its mission of providing relief for privately held companies from onerous accounting requirements, but some groups are worried that it will lose its powers and independence.

Both the American Institute of CPAs and the National Association of State Boards of Accountancy sent generally positive comment letters to the FAF in response to a request for comments in a three-year review of the PCC. The AICPA, NASBA and the FAF were the main drivers behind the foundation of the PCC as a way to provide a louder voice for private companies in the accounting standard-setting process, and collaborated on a Blue Ribbon Panel report in January 2011 that led to its creation in 2012.

In a May 8 letter to the FAF’s board of trustees that was signed by AICPA chair Tommye Barie and president and CEO Barry Melancon, the Institute applauded the spirit, commitment and dedication demonstrated by the FAF, the FASB board, the PCC and the FASB staff.

“The combined efforts to date have shown that all parties involved have been listening to the private company constituencies,” they wrote. “Regardless of how many constituents take the time to write a letter to FAF, we can assure the FAF, based on our vast contacts with private companies and their public accounting firms, that the FASB/PCC output has been extremely well received and appreciated, and these same constituents look forward to continued momentum in aggressively addressing private company issues.”

They noted that the FAF has expended great energy and resources “to rightly have the entire organization become more attuned to the private company financial reporting constituency.” However, the AICPA also expressed the “hope that certain process changes and other matters would not weaken the Private Company Council and the private company initiative, or the FAF and FASB’s commitment to this effort.”

During meetings of the Blue Ribbon Panel, the AICPA had wanted the Private Company Council to be an independent standard-setting board, but the FAF instead decided to keep FASB in the role of standard-setter for both public and private companies. However, the PCC was given the ability to vote on changes to accounting standards for private companies and recommend them to FASB for endorsement.

Melancon and Barrie said that FASB and the PCC should be partners in deciding when differences in GAAP are appropriate. “The PCC cannot become merely an advisory body to FASB,” they wrote. “The PCC should formally decide its project agenda and vote on the need for differences in existing GAAP, and its recommendations for differences in active FASB projects (regardless of whether FASB initially agrees with those recommendations) should be exposed for public comment along with the FASB’s rationale for its decisions regarding those recommendations. This level of partnership and transparency is necessary to demonstrate that FASB is listening to the needs of the private company constituency.”
Melancon and Barrie also noted that the PCC’s work isn’t finished yet. More work needs to be done with making changes in the existing accounting standards for private companies, and the PCC and the FAF should guard against introducing unnecessary complexity in discussions.

NASBA Letter

NASBA also filed a comment letter on May 11, signed by NASBA chair Walter C. Davenport and NASB president and CEO Ken Bishop. They too praised the PCC’s work to date.

“It is clear that the PCC’s work thus far has been successful,” they wrote. “Private companies are adopting and already utilizing the alternatives proposed by the PCC and endorsed by the FASB. Simplified accounting alternatives for both goodwill and variable interest entities, as examples, have brought welcome financial reporting relief to private companies. The pronouncement simplifying the criteria for application of hedge accounting to ‘plain vanilla’ interest rate swaps is an example where the PCC has improved the relevance of private company financial reporting for users, by reducing artificial earnings volatility and enhancing comparability of these financial statements to those of companies with fixed-rate debt. Also importantly, users of these financial statements are embracing the changes.”
But like the AICPA, NASBA is concerned from the tone of the FAF’s request that the PCC could be relegated to an advisory role in the future.

“The FAF made a very visible and significant commitment to the PCC,” Bishop and Davenport wrote. “However, a theme in the Request for Comment is an assumption that the PCC’s role henceforth will primarily be advisory. We believe the PCC can continue to serve as a critical part of the FASB’s standard-setting process and overall culture. Therefore, any changes that diminish the PCC being regarded as an important component in determining private company reporting standards should be rejected. We believe limiting the PCC’s role primarily to that of an adviser would seriously hamstring the PCC and undermine the FAF’s PCC commitment. In that respect, the PCC’s agenda should not be defined solely by the FASB’s active agenda.”

NASBA would also like to see the terms of PCC members to be extended to five years, and it said the PCC should be allowed to set its own agenda. The PCC's founding chairman, Billy Atkinson, is stepping down when his term expires at the end of this year (see Private Company Council Chair Billy Atkinson to Step Down).

“The PCC should not be limited to the FASB’s active agenda, and should continue to have the latitude to consider additional private company-related alternatives to GAAP, following the existing endorsement process,” Bishop and Davenport wrote. “The PCC should also retain the ability to set its own agenda. The effectiveness of the current process is grounded in this ability, as it gives an independent voice to the PCC. Absent the principles outlined above, we fear the PCC will cease to be viewed as a serious standard-setting body. That message would reverse much of the good work already accomplished and reopen the private company GAAP debate. The PCC would likely be hampered by many of the issues its predecessor faced. Further, and specifically, with respect to look-back, we believe it is a healthy process, and just as the FASB may want to reconsider past actions, as a responsible agent of change, the PCC should be allowed the same prerogative.”

The AICPA and NASBA aren't the only groups weighing in on the PCC lately. The CFA Institute has also expressed reservations in a recent report about oversimplifying the accounting standards for private companies at the expense of investors (see Investors Unhappy with FASB Simplification of Accounting Standards for Private Companies).

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