On May 23, the Financial Accounting Foundation (FAF) voted to create the Private Company Council (PCC), whose main purpose will be to define differences and exceptions in U.S. GAAP for private companies. This new council will differ considerably from the previously proposed council in October. Several reductions of FASB’s part in the PCC’s decision making process have been made: FASB’s role in the decision making process has been switched from “ratification” to “endorsement;” The PCC chair will no longer be a FASB member; FASB will be given 60 days to approve a PCC decision or must give a public, written notice of why it failed to endorse the decision; and the PCC is able to decide, by a two-thirds vote and discussion with FASB and stakeholders, which components of GAAP are eligible to be exceptions or modifications.
The PCC, with around nine to 12 members chosen by FAF, will hold a minimum of five meetings every year during its first three years. Several of the deliberative meetings will welcome the public and FASB members, while other administrative and educational meetings will exclude FASB members. A FAF committee will supervise the PCC and FASB as they respond to the requests of the private companies. The Private Company Financial Reporting Committee, which had previously worked with FASB about private company matters, will no longer exist in the near future.
Suggested variances in U.S. GAAP for private companies will be brought up by the public and discussed further by the PCC, who will send the approved modifications or exceptions to FASB for final endorsement. These endorsed modifications or exceptions will then be integrated into U.S. GAAP. FASB is in the process of creating a Private Company Decision-Making Framework, which will be the standard set of rules to determine if and when an adjustment to U.S. GAAP is necessary for private companies. FASB is also working on establishing a clear understanding of how a nonpublic entity is to be defined. The AICPA has shown its support for the PCC and has proclaimed its plans to found an “other comprehensive basis of accounting” (OCBOA) framework for private companies that are small enough to be excluded from the requirement to file U.S. GAAP financial statements. The AICPA hopes that OCBOA will be a “less comprehensive, less costly alternative” for these small and medium-size companies and believes that steps have been made in the right direction to change U.S. GAAP for all private companies.
Source: Journal of Accountancy, July 2012, FAF Creates Private Company Council by Ken Tysiac