The Private Company Financial Reporting Committee held what is likely to be one of its final meetings last week as the PCFRC gets ready to disband.

The committee, which has been providing input to the Financial Accounting Standards Board since 2007 on private company reactions to accounting standards, is likely to undergo changes next year. The Financial Accounting Foundation has proposed for the PCFRC to be replaced by a Private Company Standards Improvement Council that would work with FASB on setting differences in accounting standards for private companies. Comments are due in January on the controversial proposal.

The American Institute of CPAs has said the proposal does not go far enough in addressing the recommendations of a Blue Ribbon Panel on Standard Setting for Private Companies. The AICPA, which provides administrative support for the FASB advisory committee, is pushing for a completely separate board to set differences in U.S. GAAP for private companies without FASB’s involvement, albeit still under the oversight of the FAF (see A Line in the Sand).

Whichever way the FAF ultimately decides to set up the structure, the PCFRC appears likely to dissolve in the near future. “The way the proposal currently is, we will go away and be replaced by this new Private Company Standards Improvement Council, but we will continue working as a committee until such time as we’re told to stop,” said PCFRC chair Judy O’Dell in a phone interview after the committee’s meeting last Friday at FASB’s headquarters in Norwalk, Conn. She noted that the PCFRC still has meetings scheduled for May and June.

One of the main topics of discussion at last week’s meeting was the FAF proposal for the new standards improvement council, and O’Dell said the committee is likely to issue a comment letter. The PCFRC discussed the proposal with FAF president and CEO Terri Polley in a closed session and provided input on the lessons learned that could be passed on to the new group once it is set up. It is not clear yet who will be on the new council, and whether it will include any members of the PCFRC. The structure of the new council has not yet been determined, and it will be up to the FAF trustees to appoint the members.

However, as there were a wide range of reactions to the proposal for the new standards improvement council, O’Dell believes that many of the 13 members of the PCFRC will write separate comment letters on their own to the FAF, while the letter from the committee as a whole will simply be advice about how the process can be improved for setting differences in accounting standards for private companies.

“I think everybody on the committee wants the best process to be in place for private company standard setting,” she said. “Whether what’s proposed is the best standard, everyone around the table has slightly different opinions, and I think every member of the PCFRC will probably be writing private letters. But from the PCFRC’s viewpoint, our letter will simply be points for the FAF to think about as they proceed down this process. In other words, here are situations in the process and here is how maybe the process could be improved. We won’t be coming up thumbs up or thumbs down on the whole FAF proposal. It will be input into the thought process that FAF should go through.”

O’Dell declined to comment on her own reaction to the proposal and said she probably would not write her own comment letter on the FAF proposal, noting that she is a FASB employee.

“For me to comment at this point would be inappropriate,” she said. “I’m letting the process take place. I’ve made my views known privately.”

Asked about her reaction to the AICPA’s resolution at its Fall Meeting of Council threatening to set up its own board or committee for setting private company standards unless the FAF proposal is substantially changed, O’Dell replied, “I think if the AICPA were to pull together a project where they gave better guidance on OCBOA [Other Comprehensive Basis of Accounting] financial statements, which are what many very small companies report on, they would do the private company world a great service. A lot of private companies report on a tax or cash basis. They don’t use GAAP financial statements, and there is not a lot of guidance for how to do those. One of the ideas would be for the AICPA to provide better guidance on the preparation of those statements so that they could be better utilized by the very, very tiny private companies that don’t need to prepare GAAP financial statements.”

O’Dell disputed the claim in the AICPA Council resolution that the FAF proposal for the new Private Company Standards Improvement Council is “essentially replicating what exists today in the Private Company Financial Reporting Committee,” which some AICPA officials referred to as the “Judy O’Dell Committee.”

“If anybody reads the proposal, they will see that what they are proposing is substantially different than the way our committee is structured,” said O’Dell. “The big difference is that the committee is under the direct supervision of the Financial Accounting Foundation, whereas the existing PCFRC is an advisory body to FASB, and that’s a huge difference. We are not authorized to set standards. All we can do is make recommendations and comment, but we can’t propose standards. We don’t vote on standards. The structure is very, very different.”

Besides discussing the FAF proposal, the PCFRC also had a number of items on its agenda at last week’s meeting. One of them was a document that the FASB staff is currently working on to set up a private company accounting decision-making framework. The committee discussed with FASB how to justify exceptions and differences in recognition and measurement, and especially how to define a nonpublic or a private company that would fall under the framework.

Another topic of discussion was FASB’s latest exposure draft of its proposals for revenue recognition standards. “We had some discussion with the staff about what has changed from the original exposure draft to the new one,” said O’Dell. “By and large, we’re satisfied that a lot of our initial concerns have been addressed. There are still a few things that we believe need clarification, and we’ll be drafting a comment letter.”

Risks and uncertainties were also discussed at length at the PCFRC meeting, including pulling the language on going concern from the audit standards into the accounting standards, and who should make the call on going concern: whether it should be management or the auditor. “Our discussion was all over the place on that,” said O’Dell. “All we were doing was providing the board with input, pros and cons, and different perspectives, but there is no consensus at this point [on going concern]. It’s still early in the project. There aren’t any standards in the accounting literature at this point. What FASB is attempting to do is try to figure out is what if anything should be put into Generally Accepted Accounting Principles regarding this. Right now all the guidance resides in the audit literature.”

The PCFRC also discussed lease accounting with FASB’s full board, particularly the unresolved matter of related-party leases. “These are intertwined with consolidation issues on variable interest entities,” said O’Dell. “We decided to set up a task force to work with staff to discuss some of the various examples and decide how to incorporate them into the leasing standards.”

In addition, the PCFRC discussed FASB’s recent proposals on standards for investment companies and investment properties, and the PCFRC plans to issue a few minor comments on those proposals as well as on consolidations.

By the time of the next PCFRC meeting in early May, the FAF may have decided on what the future of private company standard setting will be. It is sure to be an active topic of discussion at the next meeting, with just one more meeting scheduled for late June. “We’ll gracefully go out of business if that’s the case,” said O’Dell.

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