Evolution in Standard-Setting for Privately Held Companies
In a meeting on May 23, 2012, the Financial Accounting Foundation (FAF) voted to establish the Private Company Council (PCC) that will determine when modifications and exceptions to U.S. GAAP are necessary for privately held companies. In the latter half of 2009, the FAF, American Institute of Certified Public Accountants, and the National Association of State Boards of Accountancy set up the Blue Ribbon Panel (BRP). The goal of the BRP was to look at the current standard-setting structure, understand the needs of users of private company financial statements and the cost-benefit of privately held companies implementing the current standards, and ultimately to recommend an alternative standard-setting process for privately held companies.
The PCC has two primary purposes: determine whether exceptions or modifications to existing U.S. GAAP are necessary for privately held companies and to be an advisory board to the Financial Account Standards Board (FASB) on the appropriate treatment of new standards for privately held companies. The PCC will consist of 9 to 12 members and one chair, which will not be a FASB member. These members will be users, preparers, and practitioners with extensive experience in working with privately held companies.
If the PCC makes a recommendation to FASB on modifications or exceptions to U.S. GAAP and FASB endorses, by a simple majority of the members, the recommendation, the modifications and exceptions will be put out for public comment. If the FASB doesn’t endorse the modifications or exceptions, the FASB Chairman will provide the PCC Chair with a written explanation as to why FASB isn’t endorsing the modifications or exceptions and possible changes the PCC should consider for FASB to endorse the modifications or exceptions.
John J. Brennan, Chairman of the FAF Board of Trustees, following the meeting stated, “The Trustees believe that the plan approved today will improve the standard-setting process and give private company stakeholders additional assurance that their concerns will be thoroughly considered and addressed.”
For more information on the PCC, please refer to the news release on the FAF website.