On December 6, the Private Company Council (the Council) held its inaugural meeting with the FASB. Key agenda items for the meeting included (1) discussion of stakeholder feedback on the Private Company Decision-Making Framework, (2) the direction of the Council's technical agenda, and (3) the official transition from the Private Company Financial Reporting Committee (PCFRC) to the Council. This In brief article provides an overview of the Council and FASB's discussion of each of these items.
On December 6, the Private Company Council (Council) held its inaugural meeting with the FASB (Board). The Council was established to determine when modifications to US GAAP should be considered for private companies. Modifications proposed by the Council are subject to endorsement by the Board. The Council will also serve as the primary advisory body to the Board on private company matters.
Key agenda items for the meeting included discussion of stakeholder feedback on the Private Company Decision-Making Framework1 (the "framework"), the direction of the Council's technical agenda, and the official transition from the PCFRC.2
Private Company Decision-Making Framework
Respondents to the FASB staff discussion paper on the framework generally agreed with the differential factors between public and private companies and the considerations for modifications outlined in the proposed framework. The Board and Council discussed how some differential factors, such as limited accounting resources, should not be a consideration for certain types of modifications (for example, recognition and measurement).
Council members affirmed that the differential factors do not apply equally to all private companies and, accordingly, the considerations and presumptions in the framework are guidelines for deliberations, but are not authoritative rules.
There was also discussion of whether a company that elects to apply any modification must also apply all current and future modifications. There seemed to be general sentiment that a company should be able to pick and choose which modifications provide the most relevant and cost-beneficial information; however, some modifications may be required to be applied in conjunction with others.
What accounting topics will the Council tackle first?
The FASB staff provided a summary of the key areas of concern for private companies identified through information gathered by the Blue-Ribbon Panel3 on Standard Setting for Private Companies and private company roundtable discussions in 2010 and 2011. The Council members directed the FASB staff to prepare agenda research memoranda on four topics: (1) accounting for uncertain income tax positions, (2) consolidating variable interest entities, (3) accounting for "plain vanilla" interest rate swaps, and (4) recognizing and measuring various intangible assets acquired in a business combination. It is expected that for each of the topics, the research memoranda will explain the areas of concern and provide alternatives for determining the scope of the Council’s efforts.
Transition from the PCFRC
A PCFRC member summarized recent activities of the PCFRC and provided insights on current FASB projects. The member shared lessons learned by the PCFRC and encouraged the Council members to focus on their mandate to improve current GAAP for private companies, to get involved early in the development of new standards due to the difficulty in changing existing standards, and to devise a process for outreach to private company constituents. The PCFRC will officially disband on December 31, 2012.
Concerns about the complexity and relevance of US GAAP have been noted by private company stakeholders for some time. Similar concerns have also been raised regarding public companies and not-for-profit organizations. Improving standards for private companies will be the focus of the Council. In addition, the Board may choose to expand some modifications to other entities as part of its endorsement process.
The next Council meeting is scheduled for February 12, 2013 when the Council will evaluate the agenda research and formally vote on adding projects to its technical agenda.
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) or Dieter Wulff (1-973-236-4856) in the National Professional Services Group.
1 Refer In brief 2012-31, FASB issues Invitation to Comment on Private Company Decision-Making Framework, for more information on the invitation to comment.
2 The Private Company Financial Reporting Committee (PCFRC) was established in 2006 as an advisory-only body to the FASB on private company matters.
3 The Blue-Ribbon Panel on Standard Setting for Private Companies was formed in late 2009 by the American Institute of Certified Public Accountants, the Financial Accounting Foundation, and the National Association of State Boards of Accountancy to address the needs of US users of private company financial statements, including an analysis of the standard-setting process. In January 2011, the panel recommended significant modifications to the current accounting standard-setting process for private companies.
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