Last week, the Financial Accounting Foundation (FAF) voted to create the Private Company Council (PCC) to improve standard setting for private companies. This decision comes after many heated discussions between private and public companies, as well as thousands of comment letters from the public.
The PCC is similar to the blue-ribbon panel originally proposed by the AICPA in 2009, which recommended a separate body with standard-setting ability for private-company accounting. However, the new council differs significantly from what the Financial Accounting Standards Board (FASB) had originally proposed in its recommendation for a Private Company Standards Improvement Council, which would have fallen under FASB’s jurisdiction.
FAF President and CEO Teresa Polley said the plan strikes an important balance for the needs of public and private companies and will ensure comparability of financial reporting to avoid a “two-GAAP” system.
The PCC will have two principal responsibilities. The PCC will decide on whether exceptions or modifications to existing U.S. GAAP are necessary to address the users of private company financial statements. The PCC will also identify, deliberate and vote on any proposed changes to U.S. GAAP. The FASB will be responsible for endorsement, rather than ratification, and must provide public, written notice within 60 days of the reason to not endorse any modifications or exceptions proposed by the PCC.
The PCC will be comprised of 9 to 12 members appointed by the FAF Board of Trustees, and the PCC chair will not be a FASB member. The FAF Board of Trustees will also create a special-purpose review committee of Trustees, the Private Company Review Committee, to oversee the way the PCC and FASB respond to the needs of private companies.
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