Society to FAF: Keep private
company board separate

In a letter to the Financial Accounting Foundation dated Dec. 12, NYSSCPA President Richard E. Piluso reiterated the Society’s support of a separate standards-setting board to oversee issues relating to private companies.

“Our overall conclusion is that we continue to support a separate standards-setting board for privately held entities,” Piluso wrote.

Piluso said the Society adopted this position after an extensive outreach effort that encompassed a poll of the members; a half-hour presentation at the July Leader-ship Conference, where a straw poll was taken; and conversations with members during various managing partners meetings and town hall meetings throughout the state.

Piluso noted that he talked not just to those in private businesses, but to a variety of members.

“Some may be members in industry, some were academics and some were public accountants,” Piluso said. Whatever their practice area, the majority of those he spoke with supported the idea of an independent private company board, as opposed to a board whose decisions are subject to Financial Accounting Standards Board ratification, he said.

Piluso’s letter was in response to the FAF’s Oct. 4 Plan to Establish the Private Company Standards Improvement Council, calling for the creation of a board devoted to providing differential or modified standards for private companies, but accountable to the FASB. Piluso’s letter said such an arrangement would be inadequate to address the difficulties that private companies face in applying accounting standards created for public companies.

A report released early last year by the Blue-Ribbon Panel on Standard Setting for Private Companies and authored by representatives of the FAF, the AICPA and the National Association of State Boards of Accountancy, concluded that the U.S. accounting standards-setting process does not sufficiently consider the needs of private companies. For example, many standards lack relevance for private companies, such as those on variable interest entities, uncertain tax positions, fair value measurements and goodwill impairment, the report said.

“Since it also appears that the least relevant standards for private company users are often the most complex, the [blue-ribbon panel] believes that private companies are incurring significant unnecessary cost for GAAP financial statement preparation and audit, review, or compilation services,” said the report.

The report then recommended that modifications and exceptions specific to private companies be made to U.S. GAAP, in addition to creating an independent standards-setting board to oversee those changes. The Society released a comment letter in July supporting that position. However, the FAF—which is ultimately responsible for implementing any changes—proposed establishing in the Oct. 4 plan a Private Company Standards Improvement Council within the FASB, where it would be responsible for identifying, proposing, deliberating and formally voting on specific exemptions or modifications to U.S. GAAP for private companies.The ultimate decision-making power, however, would remain with the FASB.

FASB Chair Leslie F. Seidman defended the FAF’s proposal in her Oct. 25 speech at FAE’s IFRS Conference.

“It’s important to maintain FASB’s role as sole standard setter,” because the FAF was concerned that two separate boards could lead to a rift between public companies and private ones and might add unnecessary complexity and prevent private company-specific issues to be considered within the context of all companies, Seidman said.

Piluso, however, restated in his Dec. 12 letter that the Society does not support the FAF’s plan.

“We submit that after 30 years of numerous advisory councils and studies and, most recently, the recommendation of the [blue-ribbon panel], your proposed recommendation would not result in a successful outcome for private companies,” wrote Piluso.

The letter pointed to a previous FAF effort to establish a body to address private company issues, the Private Company Financial Reporting Committee, which Piluso called “unsuccessful in achieving its mission.” Piluso cited the PCFRC’s failure to engage in advocating on behalf of its constituents and its being staffed by the FASB—which frequently did not accept the PCFRC’s recommendations—as factors that led the PCFRC to fall short of its original purpose.

Since the proposed council would share a structure similar to the PCFRC, Piluso wrote that he was not confident that the PCSIC could avoid the same fate.

“It is unlikely that the PCSIC’s effectiveness would differ from that of the PCFRC when the FASB has the final authority to ratify or reject its recommendations,” wrote Piluso.

Should the FAF decide to go through with its own proposal, Piluso asserted that it would need to find ways to avoid the perception that the standards used by public companies are somehow “superior” to those used by private companies.

Other causes for concern, Piluso wrote, included how the FAF would increase the number of private company board members and staff within the FASB; how private companies would fit into global convergence issues; how the PCSIC could be effective by meeting only four to six times a year (the number of times the PCFRC met); why FASB board members can attend PCSIC meetings and have input, but not vice versa; and how the PCSIC could retain its relevance, when all of its staff would be coming from the FASB, as opposed to having its own dedicated staff.

The AICPA, NASBA and the New York State Board for Public Accountancy have also responded to the FAF’s plan. Comments were due on Jan. 14. The FAF has made all of the nearly 300 comment letters received available online at, under the “Private Company Issues” header.