State Board Report

June 2012

A new body to improve the process of setting accounting standards for private companies, the Private Company Council (PCC), was established by the Financial Accounting Foundation's (FAF) Board of Trustees on May 23, 2012. The FAF Trustees' vote to create the PCC came after months of deliberation that began with the AICPA/FAF/NASBA Blue Ribbon Panel's discussions in 2010, and then was followed by extensive outreach to stakeholders based on the FAF's proposed "Plan to Establish the Private Company Standards Improvement Council." Basically the PCC will have two principal responsibilities: It will serve as the Financial Accounting Standards Board's (FASB) primary advisory body on the appropriate treatment for private companies for items under active consideration on the FASB's technical agenda. The PCC will also determine whether exceptions or modifications to existing nongovernmental US GAAP are necessary to address the needs of users of private company financial statements. Any changes the PCC proposes will be subject to endorsement by the FASB and submitted for public comment before being incorporated into GAAP.

"This structure represents a significant improvement over our original proposal because of the very valuable suggestions we received from a broad cross section of concerned and interested constituents," FAF Board of Trustees Chairman John J. Brennan stated following the Trustees' vote. The final approved plan calls for a non- FASB member to chair the PCC, a smaller body than what was originally proposed, and more frequent meetings.

The PCC and the FASB will mutually agree on the criteria for determining whether and when exceptions or modifications to GAAP are warranted for private companies. The FAF Board of Trustees will select and appoint the 9 to 12 members of the PCC, including a variety of users, preparers and practitioners who have substantial experience working with private companies. Members will serve staggered three-year terms, and each may be reappointed for an additional two-year term. The only remuneration for PCC members will be reimbursement for expenses. One FASB member will be assigned as a liaison to the PCC, and FASB technical and administrative staff will be assigned to support the PCC and supplement dedicated full-time PCC employees.

A two-thirds vote of the PCC's members will be required to determine which elements of existing GAAP to consider for possible exceptions or modifications. If exceptions or modifications to GAAP are proposed by the PCC, then a simple majority of FASB members would be needed before exposure for public comment. Once the comments are considered, and the PCC redeliberates their proposal, then it will be forwarded to the FASB for a final decision on endorsement, which should be within 60 days. During its first three years, the PCC will meet at least five times each year, most frequently in the FAF's offices located in Norwalk, CT.

FAF President and CEO Teresa S. Polley commented: "…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." President Polley will address NASBA's Western Regional Meeting on June 29 in Anchorage, and Chair Brennan will address NASBA's Eastern Regional Meeting on June 15 in Philadelphia.

NASBA representatives who participated in the FAF's 2012 roundtables were: Billy Atkinson (TX), Elizabeth Gantnier (MD), Gaylen Hansen (CO) and Telford Lodden (IA).

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