FAF Rejects Independent Standard Setter for Private Companies
Institute urges members to send comment letters.
The AICPA has expressed profound disappointment with a Financial Accounting Foundation (FAF) proposal on private company accounting standard setting and is urging CPAs and others to weigh in on the debate.
The FAF proposal released in October (available at tinyurl.com/3stvppq) would create a Private Company Standards Improvement Council (PCSIC) to determine whether exceptions or modifications to U.S. GAAP are required to improve standards for private companies.
FAF, which oversees FASB, proposed that the 11- to 15-member council would conduct a review of existing U.S. GAAP, identify standards that require reconsideration and vote on possible exceptions or modifications for private companies. But any proposed changes to existing U.S. GAAP and ongoing FASB agenda projects would be subject to ratification by FASB, which is contrary to a key recommendation made earlier this year by the Blue-Ribbon Panel on Standard Setting for Private Companies. The panel, sponsored by the AICPA, FAF and the National Association of State Boards of Accountancy, called for a separate board overseen by FAF but with standard-setting authority independent of FASB.
“Three thousand private company constituents and a majority of the state CPA societies, representing more than a quarter million CPAs, have spoken. They want a separate independent standard-setting board, and they have sent letters to FAF asking for change,” Barry Melancon, AICPA president and CEO, said in a prepared statement.
FAF said its trustees concluded that creating a separate standard-setting board for private companies could lead to the establishment of two separate sets of U.S. accounting standards, which it said is not a desired outcome.
Under FAF’s proposal, the PCSIC chairman, who would be selected and appointed by the FAF Trustees, would be a FASB member with substantial experience in private company reporting. During the first three years of operations, the new council would provide periodic in-person reports to a newly created, special-purpose Private Company Review Committee of the FAF Board of Trustees. The trustees would assess the PCSIC after three years to determine whether its mission is being met and whether further changes to the standard-setting process for private companies would be warranted, according to the proposal.
In its proposal, FAF concluded that FASB and the advisory group known as the Private Company Financial Reporting Committee (PCFRC) had made gains in recent years but had stopped short of achieving all of their objectives; therefore private company needs had not been addressed as thoroughly or directly as they had intended. The PCFRC would be disbanded under FAF’s proposed approach. The committee was created in 2006 to provide recommendations to FASB on issues related to standard setting for private companies and to focus on how standard setting affects day-to-day technical activities at private companies. FAF conceded that the committee had not been wholly successful in achieving its mission for a variety of reasons, including the fact that “in the PCFRC’s early years, the FASB did not participate fully in its processes or pay sufficient attention to its recommendations,” according to the proposal.
The AICPA maintains its support for a separate board for private companies with standard-setting authority. “We don’t think the concerns of smaller private companies can be fully appreciated until there is an independent board dedicated and focused solely on the needs of private companies,” Paul Stahlin, AICPA chairman, said in a press statement. “Therefore, we will continue to ask our members and others who support more relevant, more cost beneficial standards for private companies to make their voices heard loud and clear that the best answer is an independent private company board.”
Comments on the FAF plan are due Jan. 14. FAF also plans to hold public round-table meetings after the end of the comment period. FAF Trustees will make a final decision on the plan following the end of the comment period and round tables.
The AICPA is offering information and resources at aicpa.org/privateGAAP to help members understand FAF’s proposal. The resources include a tool to make sending a comment letter to FAF quick and easy. To go directly to the tool, visit apps.aicpa.org/pcfr.
—By Matthew G. Lamoreaux, (matt@mattlamoreaux.com) freelance writer.
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