By Abbie Ceneviva, Business Assurance & Advisory Service Manager | Real Estate & Construction Industry Team
When the Private Company Council (PCC) was first established in late 2012 with the mission to advise the Financial Accounting Standards Board (FASB) on appropriate accounting modifications within generally accepted accounting principles (GAAP) for private companies, we at Keiter were cautiously optimistic. Their recommendations, once approved by FASB, would be fully permissible alternatives within the Accounting Standards Codification. While this sounded great in theory, there was still concern about the tangible impact for our clients if financial institutions and other users of the financial statements were not so eager to accept these new, and purely elective, Accounting Standards Updates (ASUs). Principal among the doubts were the loss of comparability, push back from the financial statement users, and the ‘failure to launch’ of several other similar attempts at simplifying GAAP for private companies.
We are now about 3.5 years in to the life of this organization. So how is the PPC doing so far?
In our experience here at Keiter, we have been pleasantly surprised. To date, they have issued five ASUs. Keiter has successfully assisted our clients in the implementation of these adopted ASUs, most as early as permissible. Since these simplifications have all been passed by FASB and are considered ‘real’ GAAP, we have found financial institutions and other users of the financial statements are welcoming these simplifications with open arms. In fact, many clients who were previously forced to accept qualified auditors reports in order to report desired information to their financial institutions are now back in compliance with GAAP and can boast ‘clean’ opinions. This, coupled with the time savings, cost savings, and more relevant information reported to the users of your financial statements, has made us increasingly excited about the future of this advisory body.
It turns out, we, at Keiter, were not the only ones ready for a pulse check. The Financial Accounting Foundation (FAF), the founding body for the PCC, recently conducted an assessment of the PCC and issued their report in November 2015. Based on comments letters from a wide variety of stakeholders – from academic, practitioners, professional organizations, industry organizations, and more – the FAF wanted to determine whether the PPC was meeting its primary responsibilities and mission, evaluate its role and effectiveness, and address any chances for improvement.
The comments varied, but overall findings were that the PCC had been successful in addressing the needs of users of private company financial statements by reducing the complexity of those statements and the cost to create them. As a result, any resulting tweaks to the PCC were aimed at increasing their effectiveness as opposed to changing its roles and responsibilities altogether, with the eventual goal of the PCC focusing on its advisory role to the FASB on private company matters by, “providing input during deliberations that lead to a proposed or final standard – rather than developing a private company accounting alternative right after the FASB issues a new standard.” The FASB and the PCC plan to do this by ensuring consistency, rather than redundancy, in topics on their technical agendas, increasing transparency about their current projects, and collaboration in conjunction with the Emerging Issues Task Force.
To date, a majority of the focus for the PCC has been to revisit and offer opportunities to simplify existing GAAP based on specific needs of private companies. Going forward we continue to expect a few more GAAP alternatives to already existing GAAP, the FAF was very clear the PCC would retain this authority, but as the years continue there is hope that the focus will shift to a more advisory to FASB on active FASB projects.
Abbie provides audit and assurance services in a variety of industries including: construction, real estate, specialty contracting firms, and not-for-profit entities. Abbie shares her knowledge and insights with her clients to ensure they meet their business and financial goals. Access all of Abbie’s articles on our blog.
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