Y4K? – or - Why do over 4,000 people
care about the proposal issued in October of this year by FASB
’s parent organization, the Financial Accounting Foundation (FAF
), on how to improve the accounting rule-making (aka, standard-setting) process for private companies?
The high level of engagement on the FAF’s proposal, entitled the Plan to Establish the Private Company Standards Improvement Council (PCSIC)
- which proposes to form a new advisory council focused on making recommendations for exceptions and simplifications to existing and new FASB standards , to better suit the needs of users of private company financial reporting, and submitting such recommendations for public comment and ultimate approval (“ratification”) by the FASB, similar to FASB’s working relationship with the Emerging Issues Task Force (EITF
) - may be attributable to the view that, as expressed in a form letter filed by over 4,200
of the 4,300+ commenters so far:
The new Private Company Standards Improvement Council, as proposed, does not solve the systemic problems that exist with standard setting for private companies because it requires the Financial Accounting Standards Board to ratify any suggested modifications. I urge you to establish a new independent standard-setting body whose decisions would not be subject to the FASB approval process. It is the best way to make meaningful financial reporting changes for private companies a reality.
Opposing the FAF’s plan, the AICPA supports the recommendation developed by the Blue Ribbon Panel on Standard-Setting for Private Companies, in a report issued earlier this year,
calling for a new, independent standard-setting board to be established alongside FASB, with similar standard-setting powers to FASB, to focus on private company standards. The form letter suggested by the AICPA can be found on AICPA’s Private Company Financial Reporting tab
, where there are links to AICPA [views] on FAF Proposal
, Send Comment Letter [to FAF],
and an [AICPA PCFR] Outreach Toolkit
, which includes sample letters that can be sent to bankers, private equity firms, and accounting firms, as well as powerpoint presentations and flyers.
FEI’s Committee on Private Company Standards
is closely following developments with respect to private company standard setting, and intends to file a comment letter. The comment letter deadline on the FAF proposal is Jan. 14, 2012.
The genesis for the FAF proposal, and the formation of the Blue Ribbon Panel earlier this year, was continuing concern and frustration among private company constituents (users, preparers and auditors) over what is viewed as excessive cost and complexity over providing, auditing, and understanding information required by general purpose GAAP, which some view as heavily influenced by public companies and their users (including public company analysts and regulators), to provide information that users of private company financial reporting in some cases don’t pay as much attention to, (even to the extent of backing out certain GAAP information) and can potentially find alternative information that is more relevant to their needs (and less costly and complex) by direct access to private company management.
FAF, FASB Outreach; Proposal Coming To Simplify Fair Value Disclosure by Nonpublic Co's
FASB has also focused fairly heavily on outreach activities such as roundtables with private company constituents (users, preparers and auditors) which in some cases have led to proposals to make GAAP more suitable to private companies, or in at least one case, more useful and practical for all companies, public and private. See, e.g. our earlier blog post, FASB Adds Project, May Reduce Fair Value Disclosure by Private Cos.
FASB Announces Webcast On FAF Proposal, Other Activities Aimed at Private Cos
The webcast will feature FASB board members Daryl Buck (former chair of FEI’s Committee on Private Company Standards, prior to joining the FASB) and Larry Smith (recently reappointed a board member of FASB for a second consecutive term, along with fellow board member Russ Golden). Also presenting on the webcast will be FASB staff members Jeff Mechanick, Ron Bossio, and Paul Glotzer.
Most likely the hottest topic to be covered on the webcast will be the first item below, on the FAF’s proposal. The announced list of topics for the webcast includes:
- The FAF’s proposal to create a Private Company Standards Improvement Council (PCSIC)
- Progress on a decision-making framework for making exceptions and modifications to GAAP for private companies
- Recently added projects to improve financial reporting for not-for-profit organizations
- Progress on the FASB-IASB convergence program, and
- Other active projects or recently issued standards of interest to nonpublic entities.