The Financial Accounting Foundation's board of trustees has decided to overhaul some of the procedures for the Private Company Council, which provides input to the Financial Accounting Standards Board on issues relating to privately held companies.
The FAF oversees both the PCC and FASB. It set up the PCC three years ago in response to demands for a greater role for private companies in the standard-setting process. The FAF trustees released a report Wednesday on a three-year review of the PCC recommending a number of changes in procedures and oversight to improve its effectiveness.
The PCC succeeded the earlier Private Company Financial Reporting Committee and was given the ability to vote on changes that it would then recommend to FASB. It was established after the FAF, along with the American Institute of CPAs and the National Association of State Boards of Accountancy, set up a Blue-Ribbon Panel on Standard Setting for Private Companies. The AICPA had pushed for an independent standard-setting board for private companies, but in the end the new PCC was given some autonomy, while still leaving the actual standard-setting role with FASB. There were some fears expressed by the AICPA, NASBA and outgoing PCC chairman Billy Atkinson that the group might lose some of its autonomy at the conclusion of the three-year review, but the new report seems to indicate the PCC will continue to play an important role in setting standards, albeit with some new procedures that may even strengthen the group.
Candy Wright, who will chair the PCC starting in January, told Accounting Today that she intends to carry on the work started by her predecessor. “I’m hoping that we’re just going to continue to build on the good foundation that the PCC has laid over the last three years working with the FAF and the FASB,” she said. “There have been some updated procedures that the PCC will be following. I think those are going to improve the timeliness of our input into the FASB's projects. We're hoping to do that on a more real-time basis as part of our advisory role to provide the input during the deliberations so that we can have influence on the final outcome of the standard that the FASB might issue, and we will also participate in project-specific working groups that are managed and advised by the FASB. But we will have an input as far as private companies and the impact that the proposed standard might have as the working group moves forward to advise the FASB.”
The updated procedures mainly focus on the way in which the PCC provides FASB with private company perspectives on the FASB’s active agenda projects, and on how the PCC communicates those perspectives to its stakeholders.
Established by the trustees in 2012, the PCC serves as the primary advisory body to FASB on the appropriate treatment for private companies for accounting standards under active consideration on the FASB’s technical agenda. The PCC also proposes to the FASB alternatives to existing U.S. GAAP, if needed, to address the needs of private company stakeholders.
The FAF trustees amended the Responsibilities and Operating Procedures of the PCC to reflect several improvements and issued a final report that concluded its three-year review of the PCC and its operations. The objective of the review was to determine whether the PCC is meeting its primary responsibilities and mission, and provide an assessment of the PCC’s continuing role and effectiveness.
In the course of the review, the FAF trustees received more than 50 comment letters from various stakeholders, including the AICPA and NASBA, that provided input on the PCC’s effectiveness, accomplishments and role in improving financial accounting and reporting standards for private companies.
“Most stakeholders expressed support for the PCC and agreed that it has been successful in addressing the needs of users of private company financial statements, while reducing costs and complexity for preparers,” said FAF chair Jeffrey J. Diermeier in a statement. “Stakeholders also suggested improvements—including increased transparency around the PCC’s views on active FASB agenda projects, and more robust communication of those views to the FASB and the public.”
After considering stakeholder feedback, the FAF Trustees made the following decisions:
PCC Maintains Ability to Propose Private Company Alternatives: The PCC will maintain the ability to develop proposed accounting alternatives using the guidance provided in the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies.
PCC Should Increase Effectiveness of Its Advisory Role: As the number of PCC projects addressing existing GAAP declines, the PCC’s advisory role to the FASB on active FASB projects and GAAP as a whole is expected to consume a greater percentage of the PCC’s time. To increase the PCC’s effectiveness in providing the FASB with private company perspectives on the FASB’s active agenda projects, the trustees said:
* The PCC and FASB members (and staff) should communicate regularly with each other on FASB projects for which the PCC is advising.
* Project-specific working groups, which may include non-PCC members, should be established at the discretion of the PCC chair so that PCC members can effectively advise the FASB on the impact its proposals may have on private companies.
* The PCC’s input on FASB agenda projects (including an explanation of the views of its members) should be articulated clearly and communicated to private company stakeholders, along with FASB’s consideration and disposition of that input.
* The FASB and the PCC should ensure that stakeholders are kept informed in a timely and transparent manner about PCC and FASB activities related to private companies.
PCC to Establish a Technical Agenda Consultation Group: A PCC Technical Agenda Consultation Group should be established, comprising two FASB members, the FASB technical director, and a subset of PCC members, to discuss whether it is more efficient and effective for the PCC or the FASB to take the lead on a potential project and add the project to its technical agenda. After consulting with the PCC consultation group, the PCC will decide whether to add a project to its technical agenda.
PCC Will Retain Its Size and Composition: The PCC will retain its size and composition (the chair, three users, three preparers, and three practitioners); and the term lengths of its members. To establish an orderly rotation and maintain appropriate continuity on the PCC, six of the existing PCC members were appointed to a second term and those terms were staggered.
PCC Oversight to Begin Transition: The Trustees’ Private Company Review Committee will begin to transition its PCC oversight responsibility to the Trustees’ Standard-Setting Process Oversight Committee in 2016. The Trustees expect that the Oversight Committee will assume PCC oversight responsibility no later than the end of 2017.
With the three-year review now concluded, Accounting Today asked Wright if there are particular projects that she thinks the PCC should focus on now.
“There are a number of projects that the FASB has on its agenda already that we are currently providing input into,” she said. “There's the whole simplification issue that the FASB is working on, and we are actively providing input into those initiatives that the FASB has. For any other projects that the FASB needs input regarding private companies and how it might impact them, the PCC will be the body that the FASB will go to get that input.”
In some cases, projects that started out with the PCC as ones where stakeholders thought accounting simplifications should be made for private companies became larger projects that FASB took on for simplifying standards for both private and public companies. Wright intends to maintain the PCC's involvement in looking for areas where improvements can be made for private company accountants.
“We’ll always be on the lookout for areas where there might need to be a private company alternative for a particular standard,” she said. “We have several that we are working on with the FASB now. There has been no formal recommendation or anything on those from the PCC perspective. We are in our initial stages. We perform outreach to other private company stakeholders, and the PCC is actively involved in that with the FASB. That is also one of our goals, to broaden that outreach to the other private company stakeholders to determine if there are other areas where there needs to be a focus and an alternative for private companies, so that is part of what we will be focusing on going forward.”
The PCC is holding a Private Company Town Hall Meeting on Wednesday in conjunction with the AICPA’s Controllers Conference in Orlando, Fla. The PCC plans to continue holding similar town hall meetings to get input from stakeholders on issues that might face them from a private company financial reporting perspective, and also seek input on their projects and FASB projects that might have private company interests as well.
Members of the PCC are already participating in the joint Transition Resource Group that FASB and the International Accounting Standards Board have set up for implementing the reveneue recognition standard.
Going forward, the PCC will have more formalized processes to vote and provide input on FASB projects as a result of the changes from the three-year review.
“We're going to have a PCC Technical Agenda Consultation Group that will comprise both the PCC and FASB members,” said Wright. “That group will discuss whether it’s more efficient and effective for the PCC or the FASB to take the lead on a potential project and add the project to the technical agenda. We will be in communication to make sure that efforts are not being duplicated and that we're taking the most efficient route.”
Wright anticipates her group will maintain its role in the standard-setting process.
“What I would hope is that we continue to be a sounding board for the FASB to make sure that private company issues and concerns are expressed and that we would provide them with any insight that they might need to consider private company stakeholder issues,” she said. “There are a lot of private companies out there and a lot of broad perspectives that the committee can bring. I would hope that the dialogue continues to provide communication to the FASB so that those considerations can be dealt with while they're deliberating their standards.”
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