Today, the Financial Accounting Foundation (FAF) approved a plan establishing a council to improve the standard-setting process for private companies. The FAF's plan is generally consistent with its original proposal issued in October, but it includes several changes in response to feedback received from stakeholders. Read our In brief article for an overview of the FAF's plan.
Today, the Financial Accounting Foundation (FAF)1 approved a plan establishing a council to improve the standard-setting process for private companies. The FAF's plan is generally consistent with its original proposal issued in October, but it includes several changes in response to feedback received from stakeholders. Refer to the FAF's website for today's news release.
Creation of a Private Company Council
Consistent with the October proposal, the plan creates a new Private Company Council (the "PCC" or "council"), which will operate under the oversight of the FAF. The council will determine which elements of US GAAP should be considered for possible exceptions or modifications. Any changes to US GAAP for private companies proposed by the PCC will be subject to endorsement by the FASB.
The council will also be the primary advisory body to the FASB for matters on its technical agenda pertinent to private companies.
The PCC will consist of 9 to 12 members, appointed by the FAF. Unlike the October proposal, the PCC Chair will not be a FASB member. Members will be appointed for an initial three-year term and may be reappointed for two additional years. During its first three years of operation, the PCC will deliberate at least five times per year. FASB members are expected to attend and participate in the council's deliberative meetings.
The FAF will establish a review committee with oversight responsibilities for the PCC. In addition to ongoing monitoring, this review committee will conduct an overall assessment of the PCC following its first three years of operation to determine whether its mission is being met.
Authority and responsibilities of the council
Currently, the FASB is developing a ''decision-making framework'' for determining whether and when exceptions or modifications to US GAAP are warranted for private companies. When formed, the PCC will work jointly with the FASB to finalize the decision-making framework.
Based on the jointly developed decision-making criteria, and in consultation with the FASB and with input from stakeholders, the PCC will identify those areas of US GAAP where exceptions or modifications for private companies should be considered by a vote of two-thirds of all sitting council members.
Any proposed changes to existing US GAAP will be subject to endorsement by a simple majority of the FASB members, followed by a public comment process and final endorsement by the FASB before being incorporated into US GAAP. Based on the plan, if the FASB does not endorse the changes proposed by the council, the FASB Chairman will provide the PCC with a written explanation, including possible changes for the PCC to consider that could result in FASB endorsement.
The formation of the council will likely have widespread impact on private companies. According to the FAF, concerns about the complexity and relevance of US GAAP to private companies involve a relatively small, but important, group of standards. Improving those standards for private companies will be the initial focus of the PCC.
In addition, the FAF believes that the FASB should address complexity and cost-benefit concerns more broadly, as these issues affect all constituencies. Concerns are not only raised by private companies, but also by public companies and not-for-profit organizations.
In the next few weeks, the FAF will initiate the nomination process for selecting PCC members. Full details on the plan are expected to be released next week.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact William Schramm (1-973-236-4586), Daghan Or (1-973-236-4966), or Dieter Wulff (1-973-236-4856) in the National Professional Services Group.
1FAF is the independent, private-sector organization with responsibility for the oversight, administration, and finances of its Standard-setting Boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), and their Advisory Councils.
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