As part of a mandated three-year review period, the Financial Accounting Foundation (FAF) is asking stakeholders to weigh in on how well the Private Company Council (PCC) has fared in addressing financial reporting issues relevant to private business entities. The FAF’s board of trustees recently released a request for comment asking interested parties to share their input by May 11.
Established in May 2012, the PCC was the culmination of a yearslong effort on the part of the FAF, the AICPA and the National Association of State Boards of Accountancy (NASBA) to identify and address what they saw as systemic problems in how the standards-setting process applied to private companies. The PCC, whose work is overseen by the Financial Accounting Standards Board (FASB), both advises the FASB on issues important to private companies and recommends modifications and exceptions to U.S. generally accepted accounting principles (GAAP) that could be used by private entities.
Since the PCC’s formation, the FASB has endorsed four accounting standards updates recommended by the council—one that allowed for a simplified goodwill accounting, one that allowed for a simplified hedge accounting approach when accounting for certain interest rate swaps, one that set out to improve private company financial reporting in the application of variable interest entity guidance to certain common control lease arrangements, and one that exempted private companies from having to separately recognize and measure noncompetition agreements and customer-related intangible assets incapable of being sold or independently licensed in a business combination.
The FAF board of trustees document that formally created the PCC specified that stakeholders would be able to, after the first three years of operation, assess whether the council is meeting its primary responsibilities and mission, provide an assessment of its continuing role and effectiveness, and address changes that might be made to improve its effectiveness.
Among other things, the board has also asked stakeholders to assess, in their responses, what organizational or procedural improvements might be needed.
NYSSCPA members respond
The NYSSCPA boasts 3 of the PCC’s 10 members: Neville Grusd, Lawrence E. Weinstock and Mark Ellis, all of whom were unequivocally positive about their experiences with the council and said that they looked forward to the work that it would be doing in the future.
Noting that the PCC has dealt with several big issues since it was formed, Ellis said that he thought its members had “done well at identifying and coming up with solutions.”
While Grusd acknowledged that there were sometimes spirited debates on the best course of action to address an issue, he said the council has nonetheless developed a strong sense of “team spirit” that helps them work together.
For his part, Weinstock said that council’s impact has gone beyond just private companies, with its interaction with the FASB bringing about a cultural change in the board’s approach to standards setting in general. He noted that two new FASB projects—the simplification initiative and the disclosure framework project—are both aimed at tackling the problem of complexity in accounting standards for both public and private companies.
“The initial focus on private company issues has led the entire FASB board to consider the problem of complexity on a much broader basis,” he said. “The board, now that we’re baked into [this issue], is definitely looking [with] a 360 degree view on complexity.”
J. Roger Donohue, a member of the NYSSCPA’s Financial Accounting Standards Committee, had a positive view of the work the PCC has done so far as well. Donohue was one of the authors of an NYSSCPA comment letter released in 2012 that called for the council to take a user-oriented approach to decision making when it deliberates on whether and how to make modifications to GAAP.
“I think [the council] has been making every effort to identify the needs of the private companies,” he said. “I think they’re headed in the right direction.”
Beth Van Bladel, a member of the NYSSCPA’s CFO Committee, noted that she herself has benefited from the GAAP modifications, specifically its private company exceptions for business combinations and goodwill.
“By adopting these two standards updates, I was able to reduce the cost and complexity associated with business combinations,” she said.
However, other members do see room for improvement. Jack Vivinetto, a past chair of the CFO Committee, said that while he approved of CFOs having a seat at the table, he didn’t feel there had been that much impact from the PCC’s efforts, and expressed skepticism about how relevant the council was.
The NYSSCPA is currently preparing its response to the FAF’s request for comments. Stakeholders can submit feedback by emailing PCCReview@f-a-f.org or mailing them. For more details, see fasb.org.