A new system for creating exceptions to U.S. GAAP for private companies will move forward with the selection this month of members of the Private Company Council (PCC).
During an informational webcast conducted Friday, FASB said the agenda for the Financial Accounting Foundation (FAF) includes a September date for PCC selections. FASB staff members said that more than 100 candidates were nominated for the PCC, whose members will be appointed by FAF, which is FASB’s parent organization.
The PCC will consist of nine to 12 members, including a chairman. The agenda calls for the PCC to meet for the first time in the fourth quarter. The PCC will be charged with identifying, deliberating, and voting on proposed exceptions and modifications to existing U.S. GAAP for private companies. The PCC also will be FASB’s primary adviser on private company issues as new standards are developed.
Exceptions created by the PCC are subject to endorsement by a simple majority of FASB members as well as public comment and due process procedures. If FASB does not endorse a PCC exception, it must provide written notice to the PCC and describe changes that could result in endorsement.
Sue Cosper, FASB’s technical director who participated in the discussion, predicted during the webcast that it would be rare for FASB to decline to endorse an exception recommended by the PCC because the board will be working with a FASB liaison in a collaborative process.
She compared the relationship the PCC will have with FASB to that of the Emerging Issues Task Force (EITF) with FASB. The EITF assists FASB in identifying, discussing, and resolving issues that emerge within FASB’s financial reporting framework.
“There have not been any instances in EITF history where the board didn’t actually endorse one of their standards, so I think that it sort of speaks for that collaboration that occurs,” Cosper said.
FASB is seeking public comment through Oct. 31 on the Private Company Decision-Making Framework it is developing to determine when it is appropriate to seek GAAP exceptions for private companies. In its Invitation to Comment, FASB’s staff made recommendations that seek to provide a method for reducing cost and complexity where appropriate without adversely affecting reporting of information that would be important to users, but FASB has not yet deliberated on them.
“There is a focus and a leaning toward user-relevant considerations,” FASB Project Manager Michael Cheng said during the webcast.
The proposed framework would allow consideration of GAAP differences in recognition and measurement based on responses to a series of questions about user relevance, cost, and complexity. Disclosure exceptions likewise would focus on relevant information at reasonable costs. Exceptions in display may be permitted under the proposal after consideration of whether substitute disclosure would be sufficient without fundamentally affecting comparisons with public company financial statements.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.