The Private Company Council (PCC) will continue exploring potential alternatives to financial reporting standards for private companies and will expand its advisory role on standards FASB is developing, according to a report released Wednesday.
The continued exploration of potential private company alternatives could be interpreted as a shift in direction from the Financial Accounting Foundation (FAF) proposal in February that called for a continued transition for the PCC into a body that primarily provides input on FASB agenda projects. FAF asked for comment on whether the “look-back” phase of considering possible GAAP alternatives for private companies was complete or nearly complete.
Some comment letter writers—including the AICPA—wrote that the PCC’s work on private company alternatives was not close to being finished. AICPA President and CEO Barry Melancon, CPA, CGMA, and then-AICPA board Chair Tommye E. Barie, CPA, wrote a May 8 letter to the FAF trustees.
“Consistent with how the PCC was established, FASB and PCC must be partners in deciding when differences in GAAP are appropriate,” Melancon and Barie wrote. “The PCC cannot become merely an advisory body to FASB.”
A review report on the PCC released Wednesday by FAF—which is FASB’s parent body—confirmed that the work on alternatives should continue. The report also described various mechanisms through which the PCC will assist FASB in developing its standards.
“Part of the goal is to work more collaboratively on the front end with the FASB,” Candace Wright, who will replace Billy Atkinson as the PCC chair in January, said in a telephone interview.
The report calls for:
- PCC and FASB members and staff to communicate regularly with one another on FASB projects.
- Establishment of project-specific working groups at the discretion of the PCC chair to advise FASB on the impact its proposals may have on private companies. These working groups would include PCC members and perhaps non-PCC members.
- Clear explanation to private company stakeholders about the PCC’s input on FASB agenda projects, as well as explanation of FASB’s consideration of that input.
- Timely and transparent explanation by FASB and the PCC about their activities related to private companies.
- The PCC to remain a 10-member group with three preparers, three users, and three practitioners, in addition to the chair.
In addition, the PCC will establish a Technical Agenda Consultation Group, which will include two FASB members, the FASB technical director, and some PCC members. The group will discuss whether it is more efficient and effective for the PCC or FASB to take the lead on potential projects. After consulting with the group, the PCC will decide whether to add a project to its technical agenda.
The report is the result of a formal, three-year review that was mandated when FAF created the PCC in 2012. The PCC has created four GAAP alternatives for private companies, addressing accounting for intangible assets in a business combination; applying variable-interest entity guidance to common-control leasing arrangements; accounting for goodwill; and creation of a simplified hedge accounting approach to accounting for certain interest-rate swaps.
Wright said she doesn’t have a personal list of issues for possible GAAP exceptions as she prepares to become chair of the PCC.
“I really don’t have a preconceived idea or notion of what needs to be done,” she said. “I think what I am doing is, I am listening. I am listening to the current PCC members and the outgoing PCC members, who all have done a tremendous job, and we will work together to determine whether there are areas we need to focus on going forward.”
Outreach will be a big part of the PCC’s role, Wright said.
“We will be participating in outreach to other private company stakeholders that the FASB actually performs,” she said. “We’ll participate in town hall meetings, we’ll participate in outreach calls, and we’ll actually provide lists to FASB staff for people they can contact for that outreach in order to gather the information the FASB needs to adequately consider private company issues.”
—Ken Tysiac (email@example.com) is a JofA editorial director.