FASB: FAF seeks comments on plan to improve standard-setting for private companies

04 October 2011

A new council with the authority to identify, propose and vote on specific improvements to US accounting standards for private companies is the centrepiece of a new private company plan released today for public comment by the Board of Trustees of the FAF.

The FAF is the independent, private-sector organisation responsible for the oversight and administration of the FASB and the GASB. The FASB and GASB set US accounting standards for public and private companies, not-for-profit organisations and state and local governments.

The Board of Trustees is seeking public comment on the plan by January 14, 2012.

The Trustees also plan to conduct roundtables across the country in early 2012. The Trustees will make a final decision after reviewing and considering public input.

Under the FAF plan, a new Private Company Standards Improvement Council (PCSIC) would identify, propose, deliberate and formally vote on specific exceptions or modifications to US Generally Accepted Accounting Principles (US GAAP) for private companies. Changes approved by a two-thirds majority would be forwarded to the FASB for ratification. The changes would become final following public comment, further deliberation by the PCSIC, and final ratification by the FASB. The PCSIC would replace the Private Company Financial Reporting Committee (PCFRC), a FASB advisory-only body established in 2006.

“Establishing this new council with the power to deliberate and vote on accounting changes—subject to FASB ratification—is the best way to strengthen significantly the standard-setting process for private companies”, said John J Brennan, chairman of the FAF Board of Trustees. “This approach reflects not only the judgement of the Trustees, but the views of a broad cross-section of constituents from whom we heard during our extensive outreach effort", Brennan added.

The new private company council would comprise between 11 and 15 members, appointed by the FAF Trustees, representing investors, lenders, auditors, accountants and others with broad experience in using and preparing private company financial statements. The chairman of the group would be a member of the FASB and would also be appointed by the FAF Trustees.

Once its members were appointed, the PCSIC, jointly with the FASB, would develop a set of specific criteria to determine whether and when exceptions or modifications to US GAAP are warranted for private companies. Based on those criteria, the PCSIC would identify aspects of existing US GAAP that its members believe require exceptions or modifications, and then vote on specific changes.

Changes approved by a two-thirds vote would be subject to ratification by the FASB and thorough due process, including public comment. Following the public comment period, the PCSIC would redeliberate the proposed exceptions or modifications at a meeting attended by the FASB members and vote on final changes. Following the vote, the final changes would be forwarded to the FASB for final ratification.

Press release

© FASB