FAF UPDATES PROCEDURES OF PRIVATE COMPANY COUNCIL TO
INCREASE EFFECTIVENESS, IMPROVE COMMUNICATION
Norwalk, CT—November 18, 2015—The Board of Trustees of the Financial Accounting Foundation (FAF) today released a report outlining revisions to the operating procedures of the Private Company Council (PCC) that are intended to improve the group’s effectiveness.
The updates focus on the manner in which the PCC provides the Financial Accounting Standards Board (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 the 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 Generally Accepted Accounting Principles (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 these 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 a diverse group of stakeholders 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. “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 that:
- 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.
About the Financial Accounting Foundation
Established in 1972, the Financial Accounting Foundation (FAF) is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut responsible for the oversight, administration, financing, and appointment of the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). The FASB and GASB establish and improve financial accounting and reporting standards – known as Generally Accepted Accounting Principles, or GAAP – for public and private companies, not-for-profit organizations, and state and local governments in the United States. For more information, visit www.accountingfoundation.org.
About the Private Company Council (PCC)
The PCC is the primary advisory body to the FASB on private company matters. The PCC uses the Private Company Decision-Making Framework to advise the FASB on the appropriate accounting treatment for private companies for items under active consideration on the FASB’s technical agenda. The PCC also advises the FASB on possible alternatives within GAAP to address the needs of users of private company financial statements. Any proposed changes to GAAP are subject to endorsement by the FASB. For more information, visit www.fasb.org/pcc.