FAF Establishes Private Company Council
The Financial Accounting Foundation (FAF) Board of Trustees, after seeking and considering public comment,
will establish a new body to improve the process of setting accounting standards for private companies.
The new group, the Private Company Council (PCC), will be overseen by the Trustees and will replace the existing Private Company Financial Reporting Committee (PCFRC), following an appropriate transition period.
The PCC will have two principal responsibilities. First, the PCC will determine whether exceptions or modifications to existing non-governmental U.S. Generally Accepted Accounting Principles (U.S. GAAP) are required to address the needs of users of private company financial statements.
Second, the PCC will serve as the primary advisory body to the Financial Accounting Standards Board (FASB) on
the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda. Working jointly, the PCC and the FASB will mutually agree on criteria for determining whether and when exceptions or modifications to U.S. GAAP are warranted for private companies. Using the criteria, the PCC will develop, deliberate, and formally vote on proposed exceptions or modifications to U.S. GAAP. If endorsed by the FASB, the proposed exceptions or modifications will be exposed for public comment. At the conclusion of the public comment process, the PCC will publicly redeliberate the proposed exceptions or modifications and provide them to the FASB for a final decision on endorsement. If the FASB makes a final decision to endorse, the exceptions or modifications will be incorporated into U.S. GAAP.
The PCC will comprise 9 to 12 members, including a Chair, all of whom will be selected and appointed by the
Board of Trustees. The PCC Chair will not be affiliated with the FASB and will have had substantial experience with and exposure to private companies during the course of his or her career. PCC members will include users, preparers, and practitioners who have significant experience using, preparing, and auditing (and/or compiling and reviewing) private company financial statements.
The Trustees also may appoint one or more members of the PCC as Vice-Chairs. Nominations for membership on the PCC will be sought from a broad array of interested stakeholders and stakeholder groups. Members will be appointed for a three-year term and may be reappointed for an additional term of two years (for a total of five years). Membership tenure may be staggered for some members to establish an orderly rotation.
The PCC Chair and members will serve without remuneration, but will be reimbursed for out-of-pocket
expenses incurred in connection with PCC activities as permitted by FAF policies.
A FASB board member will be assigned as a liaison to the PCC, similar to other FASB group arrangements.
FASB technical and administrative staff will be assigned to support and work closely with the PCC to leverage
the FASB’s resources and avoid duplication of efforts. Dedicated FASB staff will be supplemented with FASB
staff with specific expertise, depending on the issues under consideration.
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. Most of the meetings will be held at the FASB’s offices in Norwalk, Connecticut, but up to two meetings each year may be held elsewhere, if appropriate and necessary to address travel issues.
All FASB members will be expected to attend and participate in all deliberative meetings of the PCC, but closed educational and administrative meetings may be held with or without FASB members present.
The PCC will determine its agenda by a supermajority vote (two-thirds of all sitting members), in consultation with the FASB and with input from stakeholders. As noted above, the PCC and the FASB, working jointly, first will mutually agree on a set of criteria to decide whether and when exceptions or modifications to U.S. GAAP are warranted to address the needs of users of private company financial statements.
Based on the agreed-upon decision-making criteria, the PCC will conduct a review of existing U.S. GAAP and identify standards that it will consider for possible exceptions or modifications. The PCC will develop, deliberate, and vote on proposed exceptions or modifications, which must be approved by a two-thirds vote of all PCC members.
Proposed modifications or exceptions to U.S. GAAP approved by the PCC will be provided to the FASB for a
decision on endorsement. If endorsed by a simple majority of FASB members, the proposed modifications will be exposed for public comment. Following receipt of public comment, the PCC will consider changes to the original recommendation and take a final vote. If approved, the final recommendation then will be provided to the FASB for a final decision on endorsement.
If the FASB does not endorse a proposed or final modification or exception, the FASB Chairman will
provide to the PCC Chair, within a reasonable period of time, a written document describing the reason(s) for the non-endorsement. The document also will include possible changes for the PCC to consider that could result in a decision by the FASB to endorse. This document will become part of the FASB’s public record.
For projects under active consideration on the FASB’s technical agenda, the PCC is the primary advisory body to the FASB about the implications for private companies. The PCC will work actively and closely with the FASB to provide recommendations for consideration by the FASB during its deliberations. The PCC may vote to reach a consensus about recommendations to the FASB for appropriate treatment for private companies on active FASB projects. Those recommendations will be considered by the FASB in its deliberations, and the FASB will be responsible for documenting, in the basis for conclusions of its proposed and final Accounting Standards Updates, how it separately considered the needs of private companies and the recommendations from the PCC.