From the President’s Desk
April/May 2015May marks the third anniversary of the establishment of the Private Company Council (PCC). With the PCC, the Board of Trustees of the Financial Accounting Foundation sought to create a new group that would help the Financial Accounting Standards Board (FASB) better meet the financial reporting needs of private companies and their stakeholders.
In its first three years of operation, the PCC has accomplished a great deal. A major achievement was the development by the FASB and the PCC of the Private Company Decision-Making Framework, which helps the Board and the Council determine whether and when to provide alternatives for private companies in Generally Accepted Accounting Principles (GAAP).
In addition, the FASB in 2014 issued four Accounting Standards Updates (ASUs) based on recommendations of the PCC. These ASUs addressed accounting for goodwill, interest rate swaps, variable interest entities, and non-competitive agreements and customer-related intangible assets.
Finally, the PCC has become a springboard for effort to reduce complexity in GAAP for all companies, both public and private.
In 2016, the PCC will move into a new phase. The PCC’s first chairman, Billy Atkinson, has announced that he will step down when his current term ends on December 31 (more on that later). At the end of this year, the Trustees will appoint several new members to the Council as they create staggered terms for Council members. The process of soliciting nominations for the new PCC chairman and members is underway. We hope that our stakeholders will actively participate in the nomination process by sharing their thoughts with us here.
We also have begun a three-year review of the PCC and its operations, a process that was mandated by the Trustees when they issued the May 2012 report that established the Council. This assessment is intended to help the Trustees determine whether the PCC is meeting its primary responsibilities and mission, evaluate its continuing role and effectiveness, and consider any necessary improvements. Stakeholders who wish to share their input on the assessment should visit the Trustees’ Request for Comment.
Outreach in planning for the three-year review began during the second half of 2014. From July through October, members of the Trustees’ Private Company Review Committee and senior FAF staff spoke with Trustees, FASB members, FASB staff, PCC members, representatives from firms that audit private company financial statements, and other groups with an interest in private company issues.
From this preliminary outreach, we learned that, overall, the PCC has proven to be effective—especially in addressing “low hanging fruit” issues that are important to private companies. Stakeholders noted that although the PCC’s review of existing GAAP (what we commonly refer to as the “look-back” phase) is winding down, private companies may encounter challenges with GAAP in the future.
Going forward, the PCC will have to balance the demands of its role as an advisory body to the FASB with its responsibility to identify and help resolve unanticipated private company financial accounting and reporting issues that arise in current GAAP.One important finding of the initial assessment is that, going forward, the PCC will have to balance the demands of its role as an advisory body to the FASB with its responsibility to identify and help resolve unanticipated private company financial accounting and reporting issues that arise in current GAAP.
Based on stakeholder suggestions, the Trustees identified possible improvements to the PCC’s structure and processes—some of which the PCC and the FASB have started to implement. We have listed those potential improvements in the Request for Comment, and are seeking your feedback on whether you think they will achieve the balance that we’re seeking. Some of those suggested improvements include:
- There should be a consistent and continuous feedback mechanism among the PCC members and FASB members and staff on active FASB projects.
- The PCC should continue transitioning to a body that primarily provides input on active FASB agenda projects.
- The FAF Appointments and Evaluations Committee should continue to seek individuals that have the requisite profile to advise the FASB on active projects.
- Has the PCC been successful in proposing alternatives within GAAP that address the needs of private company financial statement users?
- Has the PCC been effective as an advisory body to the FASB?
- What organizational or procedural improvements to the PCC are needed?
- Are further changes to the standard-setting process for private companies warranted?
As we continue work on the three-year assessment, I want to echo FAF Board of Trustees Chairman Jeffrey J. Diermeier in his appreciative assessment of Billy Atkinson’s contribution to the PCC: “Billy’s leadership was instrumental in launching the PCC and setting the right tone of collaboration and cooperation in its work with the FASB.” I couldn’t agree more.
On behalf of the FAF, Jeff and I want to thank Billy for successfully guiding the PCC during its initial three years.
This is an exciting time, as the PCC continues to improve the process of setting accounting standards for private companies. And, as always, your input is an essential component of our process. In fact, it was your input and your support that played a key role in the PCC’s establishment and success to date. Taking what we’ve all learned over the last three years, how can we continue to improve?
We hope you’ll take the time to read through the Request for Comment, and share your thoughts with us by emailing PCCReview@f-a-f.org by May 11, 2015. We also encourage you to read the request for nominations, and share both with your colleagues and other interested parties.
We look forward to hearing from you.
FAF President and Chief Executive Officer