es, which will be subject to endorsement by
the Financial Accounting Standards Board,
which the FAF oversees, and be submitted
for public comment before being incorporated into GAAP. The PCC will also serve as
the primary advisory body to FASB on the appropriate treatment for private companies
for items under active consideration on the
FASB’s technical agenda.
PCC
FROM PAGE 1
A LONG ROAD
While the issue of separate, or differential,
standards for private companies — sometimes referred to as Big GAAP-Little GAAP —
has been debated since at least the 1970s, the
new council came more or less in response
to a report from the Blue Ribbon Panel on
Standard-Setting for Private Companies that
the FAF, the American Institute of CPAs and
the National Association of State Boards of
Accountancy set up in late 2009. The report
the panel issued in January 2011 called for a
separate standard-setting board to be set up
under the auspices of the FAF. The FAF, however, issued a proposal last October calling
for the establishment of a Private Company
Standards Improvement Council, whose recommendations would still be subject to approval by FASB and which would be chaired
by a member of FASB.
The AICPA said that the October proposal
did not go far enough in separating the council from FASB control and organized a letter-writing campaign that generated thousands
of comments to the FAF from CPAs. The
AICPA even suggested that it would create
its own standard-setting board. NASBA was
more supportive of the FAF proposal.
The revised proposal comes in response
to some of those complaints, but still leaves
accounting standards for private companies
in the hands of FASB. Based on criteria mutually developed and agreed to with FASB,
the Private Company Council will determine
whether exceptions or modifications to existing nongovernmental U.S. GAAP are necessary to address the needs of users of private
company financial statements.
“The plan approved by the trustees strikes
an important balance,” said FAF president
and CEO Teresa S. Polley in a statement.
“On one hand, the plan recognizes that the
needs of public and private company financial statement users, preparers and auditors
are not always aligned. But at the same time,
the plan ensures comparability of financial
reporting among disparate companies by
putting in place a system for recognizing
differences that will avoid creation of a ‘
two-GAAP’ system.”
WHAT’S IN A NAME?
“The first thing is that we changed the name
to the Private Company Council,” Polley told
Accounting Today in an interview shortly af-
ter the vote. “We had a few comments from
stakeholders that the original name was too
complicated and didn’t roll off the tongue. We
tried to simplify that.”
Polley acknowledged that many of the
changes from the original proposal came
from the comments that poured in after it
was released. “Many of these changes were
influenced by the input we received from
that process,” she said. “One of the things
that we heard was concerns about too much
influence in the original proposal. One of the
things that we changed was not having a FASB
member be the chair of the group. ... We also
decided to reduce the size of the group. ... We
just thought a smaller group would be a little
bit more nimble in getting the important work
on their agenda underway.”
Polley said that the FAF also elected to in-
crease the number of meetings of the new
council as it goes about its work. “We also
decided, because we had heard concerns
that there weren’t enough meetings and a
tremendous amount of work to be done,
so we’ve stipulated a minimum number of
meetings, at least for the first three years,
of five meetings a year, with the chairman
having the ability to call other meetings as
necessary,” she said. “We also made it clear
that while FASB members will be expected to
attend the deliberative meetings of the PCC,
the PCC could meet with or without FASB
members present for educational or admin-
istrative meetings.”
One of the key differences is the endorse-
ment process, she noted. “We’ve decided to
move away from a ratification process to an
endorsement process,” said Polley. “We be-
lieve an endorsement process more positively
describes the more collaborative relationship
that we expect between FASB and the PCC.
FASB’s being at the table for the deliberations
by the PCC we believe will enable a mutual
understanding of views, both FASB members
understanding what the PCC members be-
lieve and the PCC members understanding
what FASB members think, etc. ... We had
heard that concern from some commenters
that there should be at least some kind of time
limit for FASB to complete PCC issues. We
have a general expectation that FASB would
act within 60 days. If it does not, it needs to
provide to the PCC in writing the reasons why
not. In addition, should there be a decision
not to endorse by FASB, FASB would need to
explain in writing the reason why, and also
as we heard as a suggestion from people we
conducted outreach with, FASB would pro-
vide alternatives or other perspectives that
the PCC should consider that could result in
a decision to endorse.”
She does not expect there to be many
disagreements between FASB and the PCC
over any recommendations for changes in
the standards for private companies. “I would
anticipate that the endorsement process is
not going to be a surprise,” she said. “If FASB
disagrees vehemently with somewhere the
PCC is going, the PCC will know that before
it even gets to that point.”
WHO’S IN CHARGE?
Another change from the original proposal
involves oversight. “The FAF created the
committee that was referred to in the origi-
nal proposal,” said Polley. “They created that
committee today, the Private Company Re-
view Committee. We have specified who the
members will be. Mack Lawhon will be the
chair, and that committee will be charged
with holding the PCC and FASB accountable
for achieving the goals, which is to ensure that
private company issues are very well consid-
ered in the standard-setting process.”
None of the FASB members will be mem-
bers of the PCC, Polley noted, but there will
be a FASB member assigned as a liaison to the
council. That person has not been decided
yet. “They’ll have the primary responsibil-
ity for the relationship, but I expect all seven
FASB members to be very much engaged with
the PCC,” said Polley. “It’s not going to be del-
egated to the liaison.”
“FASB and the PCC will mutually agree
on a set of decision criteria that’s going to be
their guidebook for determining when ex-
ceptions or changes are appropriate for pri-
vate company standards,” said Polley. “That’s
really one of the major differences between
the PCFRC and the PCC.”
THE REACTION
The AICPA issued a statement of support for
the new council later on the same day that the
FAF trustees issued their announcement.
“With the news announced today by the
FAF, we recognize and appreciate that the FAF
has taken solid steps in the right direction
regarding the Private Company Council,” said
institute president and chief executive officer
Barry Melancon. “The AICPA is encouraged
by this approach.”
Speaking a few weeks later in mid-June at
an AICPA conference, institute chair Gregory
Anton thanked the 10,500 members who had
sent letters to the FAF on the issue, and then
explained that changes to the FAF’s proposal
for the council had made it possible for the
AICPA to support it. “Why are we comfortable
supporting this going forward?” he asked.
Among a number of changes that reduced
FASB’s sway over the new council, he men-
