State Board Report
The Financial Accounting Foundation on March 1 completed its series of four roundtable sessions to solicit public comments about its “Plan to Establish the Private Company Standards Improvement Council,” released in October 2011. NASBA was one of the three parties that sponsored the Blue Ribbon Panel on Standard Setting for Private Companies (see sbr 10/10), which provided the impetus for the FAF’s plan, and it is “very supportive” of the plan, NASBA Vice Chair Gaylen Hansen (CO) told the roundtable session held in Dallas, TX, on January 26. Other State Board representatives who participated in the roundtables were: Elizabeth Gantnier (MD), member of the Maryland Board of Accountancy, January 18 roundtable in Atlanta, GA; Telford Lodden (IA), NASBA Central Region Director, February 2 roundtable in Palo Alto, CA; and Billy Atkinson (TX), NASBA Past Chair, March 1 roundtable in Boston, MA.
The FAF’s plan, as originally released, calls for the creation of a new Private Company Standards Improvement Council (PCSIC) of 11-15 members with its chair being a member of the Financial Accounting Standards Board (FASB). Changes to standards would be approved by a two-thirds majority of the PCSIC, and then would be forwarded to the FASB for ratification. The roundtable members were asked their opinions on the specific elements of the proposal, including the number of PCSIC members, whether there should be a co-chair, should the chair be an FASB member, is there a need for continuing FAF oversight of the new process, should the PCSIC members be compensated, what would be necessary for the FASB to veto a recommended change from the PCSIC, how frequently should the PCSCI meet, who should set its agenda and what should be included in the framework for the PCSIC’s decision making. Audio recordings of the four roundtables can be found on www.fasb.org. Financial Accounting Foundation (FAF) President Teresa Polley said the FAF would be considering all the comments received during the roundtables, and in writing (which can also be found on www.fasb.org), and expects to release a final plan this May.
Three things must happen for the PCSIC to be successful, Mr. Atkinson told the Boston roundtable: the PCSIC members and staff must be tuned in to the private company stakeholders; the FASB must support the private company standards issues in a collaborative manner; and monitoring is imperative.
Mr. Lodden told the California roundtable that a 5-7 person Council would have more agility and be able to reach consensus more easily. He also thought that estimating the PCSIC would meet 4-6 times per year was not realistic. Probably more meeting time would be required when the Council starts its work, as there are already known issues to be decided. Mr. Hansen, at the Texas roundtable, also thought a smaller group than originally proposed would be better, but he agreed that an FASB member should be its chair. Mr. Atkinson recommended the chair be a PCSIC member and the vice chair a member of the FASB, with the Council setting its own agenda. Both Mr. Hansen and Mr. Atkinson stressed the Council needs to be balanced and appointed by the FAF trustees. The members need to be independent and not represent any lobbying group, Mr. Hansen stated.
There was discussion of whether or not a co-chair should be named. Ms. Gantnier reported that at the Atlanta roundtable most of the participants favored co-chairs who would set the Council’s agenda with input from advisory groups. Co-chairs were also recommended at the Boston roundtable, Mr. Atkinson said, with no trade representatives appointed to the PCSIC. However, Mr. Hansen said he was in favor of only having a chair, so that responsibility could not be passed to another person.
Some of the roundtable members questioned the need for the special FAF oversight committee (the Private Company Review Committee of the FAF Board of Trustees), which as envisioned in the plan would stay in existence for about three years. Mr. Hansen referred to NASBA’s comment letter that stressed monitoring and accountability are closely linked. He said he strongly supported the Review Committee, especially in the beginning.
The relative importance of developing a decision framework was debated at the roundtables, with some feeling it is essential to have the framework completed first and others fearing that could bog down the drive to get changes made. Ms. Gantnier commented: “How do we know whether a change is necessary without a framework under which to evaluate it?” FASB Chair Leslie Seidman reported the FASB is already working on a conceptual framework which should be released as an exposure draft in late spring or early summer. Mr. Atkinson said, “A sufficiently comprehensive study of the differing information needs of public vs. private company financial statement stakeholders should be the basis for the framework. It cannot be effectively abandoned with a subsequent patchwork of ad hoc changes or standards in response to transactions.”
Mr. Atkinson commented, “The convergence of standards internationally with divergence of standards nationally, makes no sense. We need to coordinate this initiative with the SEC’s decision on IFRS, which may come in a couple of months.”
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