In the three years since it was created, the Private Company Council (PCC) has become such an important part of the standards-setting process that the Financial Accounting Foundation (FAF) should both increase support for the new body and significantly expand its reach, the NYSSCPA said in a recent comment letter.
The letter, written by members of the Society’s Financial Accounting Standards Committee, was a response to the FAF’s request for comment on the PCC, as it conducts a mandated three-year review of the council’s activities. The FAF said it was seeking to determine whether the PCC is meeting its primary responsibilities and mission, and addressing changes that might be made to improve the council’s effectiveness, among other things.
The PCC was formally established in May 2012 after a lengthy effort by the FAF, the AICPA and the National Association of State Boards of Accountancy (NASBA) to identify and address what they saw as systemic problems in the way the standards-setting process applied to private companies. The council’s work, which is overseen by the Financial Accounting Standards Board (FASB), includes both advising the board on issues important to private companies and adapting standards within U.S. generally accepted accounting principles (GAAP) for private entities. The FASB has final approval over any suggested adaptations.
Within the last three years, the PCC has successfully completed four projects that resulted in formal exceptions or modifications to GAAP for private companies, covering goodwill calculations, interest rate swaps, common control lease arrangements and intangible assets in business combinations.
“The PCC has made good progress in reducing the complexity, cost and time necessary for private companies to comply with U. S. GAAP,” the NYSSCPA wrote, calling the council’s efforts “impressive.”
Moreover, the council’s “involvement will most likely reduce the need for the FASB to revisit the applicability of some standards at a later date,” the Society added.
In its request for comment, the FAF raised the possibility that it may be time for the PCC to take a scaled-back role, transitioning “from a body that primarily develops alternatives to existing GAAP to one that primarily provides input on active FASB agenda projects.” The Society, however, said that such a move would be premature, considering that “much more can and should be done to simplify GAAP.”
“The FAF’s comments suggest that the ‘look back,’ or review period for identifying opportunities to ease the complexity and cost burden on private companies in complying with GAAP has either ended or is nearing an end, and we don’t agree with that at all,” said Robert M. Rollmann, the immediate past chair of the Financial Accounting Standards Committee and one of the comment letter’s authors. “We believe there are a lot of additional areas that should be pursued.”
In its letter, the Society said that such areas in which the PCC could offer valuable insight include derivatives and hedge accounting rule requirements, rules surrounding the classification of financial instruments as debt or equity, the new revenue recognition standard, defined benefit plan disclosures, and reclassification disclosures pertaining to comprehensive income, among other things.
The NYSSCPA also expressed concern that, should the PCC make the transition into a mainly advisory body—as the FAF has suggested—it might lose its relevance and end up being perceived as a “short-term fix to placate proponents of private company GAAP.” For the PCC to maintain its effectiveness, the Society said, it must continue to be able to pursue its own agenda. If not, Rollmann added, it would be a great loss.
“During the more than 30 years that I have been in this profession, this is really the first time where there has been any meaningful progress on easing the burden on private companies,” he said.
Indeed, instead of scaling back the PCC, the Society felt that its role should be expanded, with more members and more town hall meetings. Some of its exceptions and modifications to GAAP should also be made available for not-for-profit entities and certain conduit bond obligors (CBO), the Society wrote.
While the Society said that it understands that the PCC’s mission is not specifically related to these types of entities, it believes the FASB has “lost the opportunity to ease the financial reporting burden, or prolonged it, [for] preparers of NPO [not-for-profit organization] financial statements, including those that are CBOs.”
“The PCC serves an extremely important role in the standards setting process that is independent to a large degree from influence by both the FAF and the FASB,” the Society concluded. “We believe the PCC’s independence allows it to be more effective in identifying timely and practical accounting alternatives for private companies, and that process, in our view, must continue.”
The comment letter period closed last month.
cgaetano@nysscpa.org