The Financial Accounting Foundation released a report that found the Private Company Council has been performing its duties effectively in representing the views of privately held companies and advising the Financial Accounting Standards Board and should continue to operate.

The FAF, which oversees FASB and the PCC, as well as the Governmental Accounting Standards Board, began reevaluating the role of the PCC in February. The PCC emerged in 2012 after the FAF, which oversees both FASB and the Government Accounting Standards Board, heard feedback from private companies that they would like more of a voice in standard-setting at FASB.

Previously, FASB and the American Institute of CPAs had operated a joint committee known as the Private Company Financial Reporting Committee. The FAF, the AICPA and the National Association of State Boards of Accountancy set up a Blue-Ribbon Panel on Standard Setting for Private Companies in 2009 to study the issue of allowing greater input from private companies, and the panel issued a plan in 2011 calling for establishment of a separate council under the oversight of the FAF that would hold its own votes. However, within a few years, it became more of an advisory committee to FASB, much like the Financial Accounting Standards Advisory Council, but not a standard-setter in its own right. The PCC still meets regularly, including  this week, and FASB continues to report on its meetings.

The PCC uses a Private Company Decision-Making Framework to advise FASB on the appropriate accounting treatment for private companies for items under active consideration on the FASB’s technical agenda. The PCC also advises the FASB on possible alternatives within GAAP to address the needs of users of private company financial statements. Any proposed changes to GAAP are subject to endorsement by FASB.

Led by the Standard-Setting Process Oversight Committee of the FAF Board of Trustees, the review elicited input from stakeholders vita surveys, virtual meetings, and letters in response to a request for public comment.

The FAF trustees determined that, overall, the PCC is fulfilling its mission and duties effectively and that it should maintain its current mission, remit and structure. The trustees also affirmed the PCC’s current meeting operations and culture. However, the report did point to opportunities for positive change, including ramping up the PCC’s communications activities, publishing a PCC annual report, and enhancing recruiting activities to identify and select new PCC members in the future.

“Good governance prompts us to conduct periodic reviews of our important advisory councils,” said FAF trustee and co-chair of the Standard-Setting Process Oversight Committee Timothy Ryan, head of technology and business enablement at Citigroup, in a statement Wednesday. “I am pleased that stakeholders largely expressed support for the PCC while making excellent suggestions for potential improvements to make it an even more effective body.”

Many stakeholders agreed the PCC is effectively fulfilling its advisory role to FASB, striking the right balance between reducing complexity and ensuring relevant and reliable information to stakeholders, according to the report. They also expressed views that the PCC has been successful in addressing the needs of the users of private company financial statements, indicating they have observed wide adoption of private company alternatives and practical expedients. 

“Overall, the sentiments focused on the positive impact the PCC has had on financial reporting for private companies and their stakeholders since its establishment in 2012, with a recognition that the PCC is the optimal vehicle to continue this important work,” said the report. 

Several stakeholders said the PCC has successfully educated FASB on issues where private companies operate differently than how public companies operate. For example, the PCC provided feedback to FASB on certain aspects of the leasing standard, and on areas that resulted in GAAP alternatives for private companies for goodwill, intangibles, hedge accounting and variable interest entity consolidation standards. 

“We are grateful to the many stakeholders who freely shared their diverse perspectives about the PCC,” added FAF trustee and co-chair of the Standard-Setting Process Oversight Committee Manju Ganeriwala, the former treasurer of the Commonwealth of Virginia, in a statement. “We are confident that the PCC can sustain its excellent track record of providing thoughtful, expert advice and counsel to the FASB for many years to come.”

The AICPA praised the findings of the report. “The American Institute of Certified Public Accountants appreciates the thoroughness of the Financial Accounting Foundation’s review of the Private Company Council, and we share the report’s findings that the council has been effective in its mission,” stated AICPA vice president of financial reporting Daniel Noll. “The AICPA has observed all of the PCC meetings since its inception and notes that it has fulfilled its role well, both in  suggesting changes to existing GAAP and in advising on prospective GAAP. As the FAF’s report notes, there are thousands of public companies in the United States but millions of private companies, so this is a critical advisory role for our capital markets. We look forward to more important work by the PCC and its continued advocacy for stakeholders who depend on financial reporting by private companies.”