Earlier this week, the board of trustees of the Financial Accounting Foundation (FAF), the FASB’s parent organization, approved the formation of the Private Company Council (PCC), which is tasked with improving the accounting standard-setting process for private companies. The two main responsibilities of the PCC will be to (1) determine whether exceptions or modifications to existing nongovernmental U.S. GAAP would benefit end users of private-company financial statements and (2) advise the FASB on how private companies should treat items on the FASB’s technical agenda.

Agenda Setting

The PCC and FASB will work together to identify suitable criteria for determining whether and, if so, when exceptions or modifications to U.S. GAAP are warranted for private companies. On the basis of these criteria, the PCC will determine aspects of existing U.S. GAAP for which exceptions or modifications may be necessary. This decision will be made by a two-thirds majority vote after the PCC consults with FASB members and analyzes input from other affected stakeholders.

FASB Endorsement

Any proposed exceptions or modifications are subject to FASB endorsement (a simple majority vote of FASB members), after which they will be exposed for public comment. After the comment period, the PCC will redeliberate the proposed exceptions or modifications and submit them to the FASB for a final endorsement decision, which will generally be made within 60 days. If endorsed, the modification or exception will be incorporated into existing U.S. GAAP. In situations in which the FASB does not endorse the proposed exception or modification, the FASB chairman must submit a written explanation to the PCC detailing possible changes that could result in a FASB endorsement.

PCC Membership and Term Limits

The PCC will consist of 9 to 12 members, including one chairman (who cannot be a FASB member). New PCC members should have private-company experience and represent various groups, including users, preparers, and practitioners. Each council member will initially serve a three-year term but could be reappointed for an additional two years.

FASB Support

The FASB will assign one of its members to work as a PCC liaison, and the Board’s technical and administrative staff will work closely with the new council. When necessary, the FASB staff will step in to offer its expertise on a particular issue.

Meetings

The PCC will hold at least five meetings a year during its first three years of operation and may schedule additional meetings if deemed necessary by the PCC chairman. Most meetings will be held at the FAF’s offices in Norwalk, Connecticut; however, up to two meetings each year may be held at an alternative location. Deliberative meetings must be attended by all FASB members and are open to the public; however, administrative and educational sessions are optional for FASB members and may be closed to the public.

Oversight

The FAF’s board of trustees will establish a Private Company Review Committee that is chaired by a trustee who has significant experience with private-company accounting matters. This committee will be tasked with overseeing the PCC (e.g., monitoring PCC meetings) and will strive to ensure that private-company issues are considered during the standard-setting process. The PCC and FASB will be held accountable by the committee if this objective is not achieved.

FAF Three-Year Assessment

The PCC will be required to submit a quarterly status report to the FAF’s board of trustees. After the first three years of operations, the FAF trustees will assess the PCC to determine whether its overall objectives are being met or whether additional changes to the private-company standard-setting process are needed.