| Judith O’Dell is the chair of the Private Company Financial Reporting Committee, which advises FASB and advocates for private companies on matters of existing and prospective accounting standards. The permanent committee—created by the AICPA and FASB in late 2006—gained traction on its first major project in November 2007 when FASB followed the PCFRC’s recommendation and tentatively granted private companies a one-year deferral for complying with FIN 48, Accounting for Uncertainty in Income Taxes. As the PCFRC’s chair, O’Dell knows of what she speaks. She is a principal and the CFO of a family business. She also runs her own business valuation and litigation support practice. In a written exchange with the JofA, O’Dell recently answered questions about the committee’s startup and progress. JofA: What is the makeup of the PCFRC and how does that makeup align with the PCFRC’s goals? O’Dell: Our committee by charter consists of four users of private company financial statements (two commercial bank lenders, a surety and a venture capitalist), four CPA practitioners from various-sized firms and four preparers of private company financial statements from various-sized companies in various industries. Our user members have been invaluable in reminding us about our focus on user needs. Our preparers keep us focused on the cost/benefit part of our mission, and our practitioners bring technical expertise. The mix produces very lively debate as we work on the various projects. JofA: Why is the PCFRC important to private companies and the users of their financial statements?
O’Dell: We are the voice for private companies at FASB. Many other organizations give input to FASB on private company matters, but there has never been a concentrated, official voice for private companies. Because the business world is complex and analysts for public companies are demanding more information, FASB’s focus has been primarily on public companies and the need for transparency in that world. Many times new standards create unintended complexity for private companies and produce results that users would rather not have. The complexities of complying with GAAP are also driving preparers to request that users accept private company financial statements with GAAP exceptions. This is not a desirable situation. JofA: How do you define success for the committee? O’Dell: Success for the PCFRC will come in incremental steps. Obviously the ultimate goal is GAAP for private companies that gives users what they need at a reasonable cost for preparers. We cannot change the accounting world overnight, but we can make an impact on FASB projects that are in process. We do that by interaction with FASB staff, educating them about the way things work in the private company world and seeking to modify proposed standards to make them realistic for private companies. JofA: Describe the committee’s relationship with FASB. How receptive has FASB been to the committee’s efforts?
O’Dell: So far I believe we have the full support of FASB. We have been working with staff to answer their questions and provide input on pieces of larger projects. We have a set of formal procedures in place for making recommendations. The fact that the board granted a delay for private companies in implementing FIN 48 is a sign to us that we are taken seriously by the board. JofA: What kind of response has the committee gotten from each of the three primary constituencies—statement users, preparers and practitioners? O’Dell: I have traveled extensively around the country this past year speaking before various groups—mostly preparers and practitioners—and the response has been very supportive. Many people have told me they’re pleased that the private company world finally has a voice at FASB. Our resource group grows after every presentation. Our work related to the delay in the implementation date of FIN 48 has gained us enormous credibility among our constituents. JofA: What are the PCFRC’s priority projects and what progress has been made on them? O’Dell: In terms of existing GAAP, we recommended the delay in the implementation of FIN 48 for private companies, which was granted by FASB. We are studying the issues surrounding FIN 46(R). Some of our constituents tell us, “We’ve dealt with it. If you request changes, that’s more standards overload.” Others, including some users, tell us that in many cases the consolidation of the variable-interest entity creates confusion, and that they would rather see the combining financial statements. It is too early to tell what, if anything, we will do with this.
We’re in the early stages of considering goodwill. And we’ve asked members of our resource group who have experience with applying FAS 123(R) in the private company world to provide us with information about issues that may have arisen in the implementation. We will use this information in our consideration of any possible recommendations to FASB on FAS 123(R). We are in the process of sorting comments received and will consider whether to study this further In terms of prospective GAAP, if the financial statement presentation project is approved by FASB in its current state, it will have a huge impact in the private company world. The proposed presentation would require changes in software, accounting education, textbooks and a large learning curve for users. We are watching this closely and working with FASB staff. Two projects in the early stages that we’re monitoring are leases and revenue recognition. JofA: How, primarily, will change driven by the committee occur—through disclosure differences, measurement differences or delays in effective dates for standards? O’Dell: It is hard to say at this point. Delays are helpful to private company preparers and practitioners—giving them time to learn lessons from public companies—but they don’t always solve the ultimate issues. Once FASB has issued a standard, it is very hard to argue that their recognition conclusions are not theoretically sound. However, we could make the case for different disclosures and/or less complex measurement standards.
JofA: What are the guiding principles that the PCFRC follows when developing recommendations? O’Dell: Our first consideration is user needs followed by cost/benefit considerations. Users have told us they value GAAP statements, seeing them as the equivalent of a Good Housekeeping seal of approval. But they really don’t necessarily care what GAAP is, nor do all users of private company financial statements fully understand GAAP. The importance of GAAP financial statements to private company users is that they allow comparisons among companies, which helps in the lending/bonding/investing process. We try to understand how users use a particular piece of information. Do they use it at all or remove it from their analysis? How much does it cost to prepare that piece of information? An example might be goodwill impairment. When analyzing the balance sheet, some private company financial statement users say they ignore goodwill. If that is a prevalent practice among users of private company financial statements, why should the cost of annually calculating impairment be incurred if there is no benefit to the user? Once we have determined user needs, we consider different ways the information could be presented. Perhaps it could be eliminated or simplified. Maybe more guidance is needed in areas applicable to private companies. We would then make our recommendation to FASB. JofA: How can readers participate in the PCFRC efforts and follow its activities? O’Dell: We have a Web site, www.pcfr.org, where we post meeting highlights, recommendation letters, meeting materials and links to FASB projects. Individuals can sign up to be part of the resource group by clicking a link on the Web site. We keep the resource group informed about our projects, meetings and recommendations via e-mail. We encourage anyone with interest to sign up on our Web site and become part of this process. JofA: How does convergence affect the activities of the committee? O’Dell: We recognize that many of the projects in the FASB pipeline are part of international convergence efforts. We applaud the efforts toward one set of accounting standards accepted worldwide. However, we are ever mindful of the effect this project might have in the private company world. To the extent that FASB and the IASB are working on joint projects with the ultimate goal of convergence, we are monitoring IASB activities. We are especially interested in the IASB’s small and medium entities project and whether it will be accepted by the IASB and prove to be useful in the countries that may adopt it. We are also monitoring the SEC’s proposal to allow U.S. companies to report using International Financial Reporting Standards and what effect that might have on standard setting in the U.S. We commented to the Financial Accounting Foundation on the SEC’s proposal, stating that the PCFRC believes a comprehensive parallel initiative for private company financial reporting, involving the key constituents, is necessary if the SEC initiative moves forward. Such a parallel initiative would help ensure that any changes in the accounting standards-setting structure in the U.S. would make sense for constituents of U.S. private company financial reporting. We were pleased to see that those comments were included in the FAF’s comment letter to the SEC. (See the FAF/FASB comment letter in “ Highlights,” page 12) We are also watching the Canadian Institute of Chartered Accountants’ efforts on GAAP for owner-managed companies as well as similar efforts in Australia. JofA: How often will the committee membership change and what is the process for making such changes? O’Dell: Committee members are selected for a one-year term and can be renewed for two more one-year terms. Our committee members are busy people, and we envision that there will be some turnover in this founding group that will provide for some natural rotation. It is important to have some continuity from year to year, but it is also good to have new ideas and new energy as well. Under our committee charter I, as the chair, select the committee and I look for diversity in the candidates’ location, industry, experience, technical knowledge and availability. JofA: What do you do when you’re not thinking about accounting standards? O’Dell: I maintain a sole proprietor CPA firm limited to business valuation and litigation services. I’m involved in our family business with my husband and two of our five sons. We do real estate development and also operate a 13-room hotel and fine dining restaurant as well as a casual dining waterfront restaurant in the historic district of Chestertown, Md. One of our sons is the executive chef. I’m also an avid photographer and prefer my large format camera and sheet film to the digital camera I use to photograph our three grandchildren. | 
