The FAF established a new body, the Private Company Council (PCC) which will have two main responsibilities. The PCC will determine whether exceptions or modifications to existing nongovernmental U.S. Generally Accepted Accounting Principles (GAAP) are necessary to address the needs of users of private company financial statements. Any changes proposed by the PCC will be subject to subsequent endorsement by the FASB and submitted for public comment before being incorporated into GAAP. The PCC will also be the primary advisory body to the FASB on the appropriate treatment for private companies for items under active consideration on the FASB’s technical agenda.
The private company plan approved today generally follows the original outline proposed by the FAF Trustees but includes several significant changes and improvements. Due to stakeholder concerns, the Trustees revised the originally proposed process through which FASB considers the PCC recommendations for private company exceptions or modifications to GAAP from one of ratification to one of endorsement. Additionally, the final plan stipulates that the PCC Chair will not be a FASB member, the PCC will hold meetings more frequently than originally proposed and that its size will be smaller than initially suggested. Descriptions of additional key elements are described below.
Working jointly, the PCC and the FASB will mutually agree on criteria for determining whether and when exceptions or modifications to GAAP are warranted for private companies. Using those criteria, the PCC will determine which elements of existing GAAP to consider for possible exceptions or modifications by a vote of two-thirds of all sitting members, in consultation with the FASB and with input from stakeholders.
If endorsed by a simple majority of FASB members, the proposed exceptions or modifications to GAAP will be exposed for public comment. At the conclusion of the comment process, the PCC will redeliberate the proposed exceptions or modifications and forward them to the FASB, who will make a final decision on endorsement, generally within 60 days. If the FASB endorses the proposals, they will be incorporated into GAAP. If the FASB does not endorse, the FASB Chairman will provide the PCC Chair with a written explanation, including possible changes for the PCC to consider that could result in FASB endorsement.
The PCC will be comprised of 9 to 12 members, including a Chair, all of whom will be selected and appointed by the FAF Board of Trustees. Membership of the PCC will include a variety of users, preparers, and practitioners with substantial experience working with private companies. Members will be appointed for a three-year term and may be reappointed for an additional term of two years. Membership tenure may be staggered to establish an orderly rotation. The PCC Chair and members will serve without remuneration but will be reimbursed for expenses.
A FASB member will be assigned as a liaison to the PCC. FASB technical and administrative staff will be assigned to support and work closely with the PCC. Dedicated full-time employees will be supplemented with FASB staff with specific expertise, depending on the issues under consideration.
During its first three years of operation, the PCC will hold at least five meetings each year, with additional meetings if determined necessary by the PCC Chair. Deliberative meetings of the PCC will be open to the public, although the Council may hold closed educational and administrative sessions. Most of the meetings will be held at the FAF’s offices in Norwalk, Connecticut, but up to two meetings each year may be held elsewhere. All FASB members will be expected to attend and participate in deliberative meetings of the PCC, but closed educational and administrative meetings may be held with or without the FASB.
The FAF Board of Trustees will create a special-purpose committee of Trustees, the Private Company Review Committee (Review Committee), which will have primary oversight responsibilities for the PCC. The Review Committee will hold both the PCC and the FASB accountable for achieving the objective of ensuring adequate consideration of private company issues in the standard-setting process. The Review Committee will be chaired by a Trustee with substantial experience in private company accounting issues. Oversight activities will be ongoing, and will include monitoring of PCC meetings, among other activities.
The PCC will provide quarterly written reports to the FAF Board of Trustees. The FAF Trustees will conduct an overall assessment of the PCC following its first three years of operation to determine whether its mission is being met and whether further changes to the standard-setting process for private companies are warranted.
The complete report establishing the PCC, including background materials, key discussion issues considered by the Trustees, and PCC responsibilities and operating procedures, will be available on the FAF website next week. The FAF Board of Trustees will issue a call for nominations for members of the PCC via the FAF website in the upcoming weeks.
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