FASB: FAF's new council to improve standard-setting for private companies

23 May 2012

The Financial Accounting Foundation Board of Trustees has established a new body, the Private Company Council (PCC), to improve the process of setting accounting standards for private companies. The new group will have two principal responsibilities regarding US GAAP.

Based on criteria mutually developed and agreed to with the FASB, the PCC will determine whether exceptions or modifications to existing non-governmental US GAAP are necessary to address the needs of users of private company financial statements. The PCC will identify, deliberate, and vote on any proposed changes, which will be subject to endorsement by the FASB, and submitted for public comment before being incorporated into GAAP. The PCC will also serve as the primary advisory body to the FASB on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda.

“The establishment of the PCC will help the FASB improve upon the efforts already underway to better serve the needs of private company financial statement users, preparers, and practitioners”, said FASB Chairman, Leslie F Seidman.

Key elements of the PCC responsibilities and operating procedures include:

• Agenda Setting: Working jointly, the PCC and the FASB will mutually agree on criteria for determining whether and when exceptions or modifications to GAAP are warranted for private companies. Using the criteria, the PCC will determine which elements of existing GAAP to consider for possible exceptions or modifications by a vote of two-thirds of all sitting members, in consultation with the FASB and with input from stakeholders.
• FASB Endorsement Process: If endorsed by a simple majority of FASB members, the proposed exceptions or modifications to GAAP will be exposed for public comment. At the conclusion of the comment process, the PCC will redeliberate the proposed exceptions or modifications and forward them to the FASB, who will make a final decision on endorsement, generally within 60 days. If the FASB endorses the proposals, they will be incorporated into GAAP. If the FASB does not endorse, the FASB Chairman will provide the PCC Chair with a written explanation, including possible changes for the PCC to consider that could result in FASB endorsement.
• Membership and Terms: The PCC will comprise 9 to 12 members, including a Chair, all of whom will be selected and appointed by the FAF Board of Trustees. The PCC Chair will not be a FASB member. 
• FASB Liaison and Staff Support: An FASB member will be assigned as a liaison to the PCC. FASB technical and administrative staff will be assigned to support and work closely with the PCC. Dedicated full-time employees will be supplemented with FASB staff with specific expertise, depending on the issues under consideration.
• Meetings: During its first three years of operation, the PCC will hold at least five meetings each year, with additional meetings if determined necessary by the PCC Chair. Deliberative meetings of the PCC will be open to the public, although the Council may hold closed educational and administrative sessions.
• Oversight: The FAF Board of Trustees will create a special-purpose committee of Trustees, the Private Company Review Committee (Review Committee), which will have primary oversight responsibilities for the PCC. The Review Committee will hold both the PCC and the FASB accountable for achieving the objective of ensuring adequate consideration of private company issues in the standard-setting process. The Review Committee will be chaired by a Trustee with substantial experience in private company accounting issues. Oversight activities will be ongoing, and will include monitoring of PCC meetings, among other activities.
• FAF Trustees’ Three-Year Assessment: The PCC will provide quarterly written reports to the FAF Board of Trustees. The FAF Trustees will conduct an overall assessment of the PCC following its first three years of operation, to determine whether its mission is being met and whether further changes to the standard-setting process for private companies are warranted. 

Press release

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