State Board Report
A proposal for the creation of the Private Company Standards Improvement Council (PCSIC) was released by the Financial Accounting Foundation’s (FAF) Board of Trustees on October 3, 2011. The PCSIC, under the oversight of the FAF, would identify accounting standards that require revisions for private companies, and then vote on specific exceptions or modifications, that would then be subject to ratification by the Financial Accounting Standards Board (FASB) and submitted to the public for comment. Comments on the proposed “Plan to Establish the Private Company Standards Improvement Council,” which can be found on www.accountingfoundation.org, are due by January 14, 2012. Comments can be e-mailed to PrivateCompanyPlan@f-a-f.org.
One of the first tasks of the PCSIC will be the development of criteria for determining whether and when exceptions or modifications to U.S. GAAP are warranted for private companies. The proposal cites as a major reason for constituents’ dissatisfaction with the Private Company Financial Reporting Committee (PCFRC), established back in 2006, was the failure of the FASB and PCFRC to develop and agree upon a framework for making such determinations. Under the new proposal, the PCFRC would be disbanded. The FAF Trustees determined they did not want to create a new separate standard-setting board because they concluded that would likely lead to the establishment of two separate sets of U.S. accounting standards.
The PCSIC would have as its chairman a FASB member, who would be selected by the FAF Trustees, and 11-15 members, who would also be selected by the Trustees and appointed for three-year terms and possible reappointment. They would meet 4-6 times per year and their meetings would be Webcast to the public, except for discussions of an administrative nature.
Periodically the PCSIC would present in-person reports to the Private Company Review Committee, a newly created special-purpose FAF committee. The PCSIC would also provide quarterly written reports to the full FAF Board of Trustees. At the end of three years the Trustees would conduct an overall assessment of the PCSIC and determine if it is fulfilling its mission and whether other changes to the standard-setting process would be warranted.
In order to avoid duplication of efforts and leverage the FASB’s resources, the proposal calls for FASB staff to be assigned to support and work closely with the PCSIC on outreach and research projects.
The report states: “The FASB has made recent, substantive changes to how it engages with private company constituents, and has demonstrated a greater operational and structural commitment to further address these issues. The Trustees believe it is appropriate to allow a period of time for those efforts to mature and are monitoring those efforts closely.”
Billy Atkinson, NASBA Past Chair who served on the AICPA/FAF/NASBA Blue Ribbon Panel on Standard Setting for Private Companies, observed: “This FAF proposal should now signal a change in the FASB’s standard setting approach to that of more relevance to stakeholders and a principled approach to dealing with complex structured arrangements. For too long, the FASB has removed itself from the real world in its standard setting with rules as difficult as the underlying transactions. This indeed could be an opportunity for FASB to come back down to Earth.”
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