A&A Focus recap: Private Company Council update

The most recent edition of the AICPA’s A&A Focus broadcast, held Oct. 2, provided valuable insights into three critical areas affecting accounting professionals: private company standards, internal control assessment, and the new quality management standards. Hosted by Bob Durak, CPA, CMGA, director of A&A Technical Services at the AICPA, and Andrew Merryman, CPA, senior manager–A&A Technical Services, the event featured the chair of FASB’s Private Company Council (PCC) and a current and former member of the AICPA Auditing Standards Board (ASB).

Private Company Council update

First, Jere Shawver, CPA, CEO of Baker Tilly US and chair of the PCC, provided insights into the PCC’s current priorities and initiatives. The PCC, established in 2012 by the Financial Accounting Foundation, serves as an advisory body to FASB, representing the interests of private companies in standard setting.

As the newly appointed PCC chair (since January 2024), Shawver provided valuable insights into the council’s current priorities and recent activities. He highlighted several important aspects of private company financial reporting, noting that private companies represent the backbone of the economy, far outnumbering public companies. Further, private company financial reporting needs often differ from public companies, and the PCC’s focus should be on making standards workable while maintaining proper accounting principles.

Shawver discussed the PCC’s recent, comprehensive evaluation of its agenda priorities. The process began with FASB staff creating an inventory of approximately 20 items. After careful review, four key areas were selected for deeper analysis and potential action:

• Credit losses: The council is recommending changes to simplify requirements for private companies, including:
  • Eliminating the need to adjust historical loss information for macroeconomic changes.
  • Allowing companies to use subsequent cash collections (after the balance sheet date but before financial statements are issued) in credit loss evaluations.
• Conditional retainage presentation: Proposed changes would allow companies to elect to present conditional retainage and contract assets/liabilities separately, responding to user preferences in the construction industry.
• Debt modifications: The PCC is examining accounting for debt modifications and extinguishment, particularly focusing on situations where the current accounting requirements may be more complex than necessary for private company stakeholders.
• Lease standard: A working group comprising PCC members, AICPA Technical Issues Committee members, and practitioners is exploring practical challenges in lease accounting implementation.

As for the future outlook, Shawver noted that the PCC plans to continue evaluating the remaining items from their initial 20-item inventory and to monitor new issues as they arise. Further, the PCC intends to continue regular evaluation of current and proposed FASB standards from a private company perspective.

He noted that while the PCC has good connections with organized groups, it remains a challenge to reach individual preparers. The council is actively seeking a new preparer member to join in 2025. Shawver noted several ways to get involved, including visiting the FASB website’s PCC page; contacting Jennifer Weiss, the senior FASB staff person supporting the PCC through the website; considering applying for PCC membership through their open recruitment process; and participating in working groups as an alternative to full council membership.

Note: Shawver wrote an exclusive JofA web article on the PCC’s top 4 priorities.

More on internal control assessment

In the broadcast’s second segment, former ASB member Lyn Graham, CPA, returned to the broadcast to discuss enhancing the efficiency and effectiveness of internal control assessment. His presentation focused on two key areas: the COSO framework and control effectiveness evaluation.

Graham highlighted the evolution from the original five-component COSO framework to the enhanced 2013 version, which includes 17 principles, and how they are embedded in AU-C Section 315,  Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement.

Graham noted that the 17 principles are requirements, not merely considerations. The related points of focus, also contained in the COSO framework, serve as valuable tools for gathering evidence to support principles. As a reminder, Graham illustrated that the principles are interconnected, creating a logical sequence from the entity’s objectives, representing COSO principle 6; to risk assessment, to control design, representing COSO principle 10; and finally, to control effectiveness evaluation, representing COSO principle 12.

Graham emphasized that auditors should align their evaluation approach with how their clients implement the COSO framework, in order to potentially increase efficiency in the overall risk assessment process.

Finally, Graham addressed a concern raised in his September appearance on A&A Focus, noting that AU-C Section 265, Communicating Internal Control Related Matters Identified in an Audit, requires reporting of deficiencies in several instances, including when controls are not identified, when documentation is lacking, and when exceptions and monetary errors are found during the auditor’s control testing.

AICPA quality management standards

In the last segment of the broadcast, Laura Schuetze, CPA, a partner in Grant Thornton LLP’s National Assurance Quality and Risk Group, provided crucial insights into the new quality management standards, which are effective Dec. 15, 2025. Schuetze emphasized that firms should already be working on implementation, emphasizing that quality management implementation is a collaborative process requiring significant time and resources.

The quality management standards, which are composed of three Statements of Quality Management Standards (one Statement on Auditing Standards, one Statement on Services for Accounting and Review Services, and one Statement on Standards for Attestation Engagements) apply to firms providing services covered by those standards.

Schuetze reminded the audience that the implementation path for firms includes performing a risk assessment, identifying any gaps in the system of quality management and addressing those gaps, documenting the system, establishing a process for ongoing monitoring, and pursuing additional remediation.

Schuetze noted that performing the risk assessment and documenting findings is likely the biggest challenge for firms and that the risk assessment process may require iterative work as gaps in the system are discovered.

Critically, Schuetze addressed a common misconception regarding the responsibility for a firm’s system of quality control. Regardless of the specialization of the firm’s managing partner, that individual has the ultimate responsibility. This applies even if the managing partner specializes in tax or advisory. Nonaudit managing partners must understand the standards and their responsibilities.

Schuetze reiterated that the AICPA has developed extensive resources to support firms and encouraged the audience to visit the AICPA QM webpage to review and download the tools and information.

Open forum

The webcast concluded with a Q&A session addressing audience questions:

• FASB and PCC collaboration on new standards: Shawver noted that FASB engages the PCC during the early stages of standard consideration and that the PCC provides input on the potential effects on private companies. He also noted that FASB shows strong interest in this early-stage feedback.
• Internal control consideration for material balances with no identified risk: Graham clarified that for significant accounts, an absence of risk needs supporting evidence, not just a statement that there are no risks. Working papers often lack an explanation of why there are no risks. He also noted that if there are no controls, there are likely risks.
• Clarification of managing partner responsibility for the system of quality management: Schuetze noted that Statement on Quality Management Standards No. 1, A Firm’s System of Quality Management, requires that ultimate responsibility rest with the firm’s CEO or managing partner and that this responsibility cannot be delegated.

In other matters

In addition to the featured topical segments, the A&A Focus Series webcast provided updates across several timely emerging issues: 

• The AICPA Accounting and Review Services Committee (ARSC) voted to expose for public comment a proposed revision that would “make explicit” that a CPA preparing financial statements as a byproduct of a consulting services engagement performed in accordance with CS Section 100, Consulting Services: Definitions and Standards, is not required to apply AR-C Section 70, Preparation of Financial Statements.
• The AICPA and the National Association of State Boards of Accountancy (NASBA) are seeking input on a proposed competency-based experience model for CPA licensure. The CPA Competency-Based Experience Pathway would provide an additional option for CPA candidates to demonstrate professional and technical skills after earning a bachelor’s degree and meeting their state’s requirements for accounting and business courses — increasing flexibility for the next generation of accountants while maintaining the profession’s rigorous public protection mandate. Comment here before Dec. 6, 2024.
• The Center for Plain English Accounting (CPEA), the AICPA’s national A&A resource center, has released two new reports. CPEA members can download the reports below:
  • Related Party Leases: Calls for More Disclosure and Structure.
  • Review Engagements: FAQs, Tips & Resources.
• FASB published a proposed Accounting Standards Update (ASU) that would aim to clarify certain aspects of the guidance on hedge accounting. The proposed ASU also addresses incremental hedge accounting issues arising from the global reference rate reform initiative. Comments are due by Nov. 25, 2024.
• The SEC approved a PCAOB standard that establishes a risk-based quality control system for public accounting firms. The PCAOB adopted QC 1000, A Firm’s System of Quality Control, on May 13, pending, the now granted, SEC approval. QC 1000 and related amendments will take effect Dec. 15, 2025.
• In a staff report released Sept. 16, the PCAOB provided advice to accounting firms on auditor independence compliance. The report came after the audit regulator saw a year-over-year increase in the number of comment forms related to independence problems during inspections of firms’ audits of issuers from 2021 to 2023.

The webcast concluded with a preview of next month’s A&A Focus, live Nov. 13. AICPA members are encouraged to attend these monthly events and review the accompanying newsletters for more in-depth coverage of these critical topics. Members can access archives of past sessions at the A&A Focus Series webpage.

— Dave Arman, CPA, MBA, is senior manager–Audit Quality at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.