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Amid the talks of globalization and changing regulations for public companies, the question remains of how these changes will affect private companies. One group charged with addressing that question is the Private Company Financial Reporting Committee (PCFRC), a joint committee of the Financial Accounting Standards Board (FASB) and the AICPA. Ohio Society member Tom Groskopf, CPA, CVA with Barnes Dennig & Co in Cincinnati joined the PCFRC last fall and gives us a look inside this pivotal organization.
What is the role of the Private Company Financial Reporting Committee (PCFRC)?
The PCFRC is part of a broad initiative by FASB and tile AICPA to further improve FASB's current standard-setting process to better meet the financial reporting needs of private companies and the users of their financial statements. It held its first meeting in May 2007. We consider differences in prospective and existing GAAP accounting standards related to private companies based on user needs and cost/benefit considerations, and make formal recommendations to FASB.
What role do you fill on the committee? Is this your first time representing the CPA profession in a national capacity?
I am one of four CPA practitioners on the committee, along with four users, four preparers and the chair. Before being appointed to the PCFRC, I served on the AICPA PCPS
Technical Issues Committee (TIC) for more than three years. The last year I was the Accounting Standards Zone Chair. Through my tenure on TIC, I was able to interact directly with FASB and become more familiar with their thought processes. The PCFRC was a natural next step for me.
What benefit have you seen personally from serving on a national professional committee?
CPAs can gain valuable knowledge, skills and experience by interacting with standards setters, which readily transfers to client responsibilities. Our firm has experienced tremendous growth in the last five years and having insight on the activities and thought processes of the FASB and other standards setters has been critical to serving our clients effectively and efficiently.
Why should CPAs volunteer to serve in similar statewide or national roles on behalf of the profession?
Private company CPA practitioners are underrepresented in tile deliberative process in standards setting, which is why groups like the PCFRC and TIC are important. However, they can't possibly communicate all of the needs of more than 22 million private companies in the United States. I encourage more practitioners to get involved in the standards setting process--even if it is something as simple as an e-mail response to an exposure draft.
From my experience, common complaints such as standards overload and Big GAAP, Little GAAP are rooted in a two-fold problem. First, standards setters and their staffs typically don't have significant experience with private companies. Second, private company CPA practitioners don't pay attention to new standards until after they become effective. That creates a disconnect between standard setters and private company CPA practitioners--one reason FASB and the AICPA created the PCFRC. We all must constantly work to bridge that divide. In my opinion, private company CPA practitioners who don't engage in the deliberative process in some way shouldn't complain about standards they don't like after the fact.
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While I don't personally agree with everything FASB does, it has a very open and transparent deliberative process. FASB members listen to well-reasoned comments. If CPAs who represent private companies participated more meaningfully and consistently, I suspect we would see standards that better address the unique challenges of private companies.
What key achievements of the PCFRC stand out in your mind? Why?
The creation of the committee was a key achievement and a credit to FASB and the AICPA. FASB gets a tremendous amount of feedback on pending standards projects from those involved with public equity securities in the United States, but relatively little feedback from those who are involved with private companies. Based on reported economic data, these 22 million private companies contribute about 50% to the gross domestic product in the United States and it is important that they have a voice in accounting standards setting.
We have had success with FASB in communicating the challenges that private companies face in applying FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). FASB has deferred effective dates in order to properly address these challenges and a project is under way to explore applying FIN 48 to pass-through entities and tax-exempt not-for-profit entities. The PCFRC provided input to FASB for the forthcoming FASB Staff Position. We have seen favorable signs from FASB on this FSP and I am hopeful that it will be beneficial for private company practitioners.
Early involvement in FASB's deliberative process tends to be more effective than engaging after a standard has been issued. We have been involved with FASB on the Financial Instruments With Characteristics of Equity, Contingencies, and Leases projects and have seen shifts that are favorable for private companies. More broadly speaking, we have been active in communicating with FASB about the applicability of fair value accounting and disclosure to the private company community. The Proposed FSP FAS 107-a (on interim disclosure about fair value of financial instruments) would have significantly impacted private companies with interest rate swaps in their Dec. 31, 2008, financial statements. We were able to educate FASB about this unintended impact. FASB did not include private companies within the scope of the final FSP (FSP FAS 107-1).
We are also entering a dialogue with FASB and the private company community about training and education. FASB recognizes the challenges in communicating its messages to the private company community and desires the PCFRC to assist. We have been and will be active in the CPE circuits to fulfill this mission and are examining technologies such as blogs to spread our message.
What are the committee's current priorities and challenges? Have any of these changed as a result of the current economic situation?
FASB has several high profile projects that are priorities for the PCFRC. These include:
* Revenue recognition
* Pensions
* Leases
* Financial statement presentation
* Financial instruments with characteristics of equity
Each of these projects will impact every CPA in Ohio. The PCFRC is also actively monitoring IFRS for Small and Medium-sized Entities (SMEs). I have encouraged FASB to include IFRS for SMEs as part of its convergence-related Memorandum of Understanding (MOU) with the IASB, however, it has not yet done so.
We also actively monitor our outstanding comment letters to FASB and provide feedback to FASB staff as needed.
The current economic situation has occupied FASB with various projects largely related to financial institutions. We have been active with FASB in making sure that the scope of these projects does not have unintended consequences for private companies that are not financial institutions.
One challenge the PCFRC faces deals with FASB Interpretation 46(R), Consolidation of Variable Interest Entities, (FIN 46R). In my personal opinion, it is difficult to argue with the conceptual foundations of FIN 46(R). However, users, practitioners and preparers have been very frustrated and vocal about the cost/benefit of FIN 46(R) compliance and the loss of comparability it brought. To date, these arguments have lost out to conceptual attractiveness. The PCFRC is hopeful that the leasing project presents an opportunity to potentially simplify FIN 46(R) compliance and presentation.
Which of these issues might affect Ohio CPAs and their clients? How and when?
The five high profile projects on revenue recognition, pensions, leases, financial statement presentation, and financial instruments with characteristic of equity will impact all Ohio CPAs in some way. At press time, the FASB Web site currently projects issuance of a final standard for these projects by 2011. However, it's important for constituents to make their thoughts known early in the process before a final standard is issued.
What is the committee's current recommendation or philosophy on the impact of IFRS for Small and Medium-sized Entities?
That project has been actively monitored by the PCFRC. The project itself has had a bit of an identity crisis as it has gone through a series of name changes (IFRS for Non-Publicly Accountable Entities, IFRS for Private Entities and, as of the March 2009 IASB meeting, IFRS for SMEs.
However, the substance of the project has remained the same: a single set of self-contained, simplified accounting standards for certain private companies. Key differences include:
* Trigger-based impairment testing for goodwill, as opposed to testing at least annually for impairment
* A reliable measurement exception for fair value
measurements
* A blanket exemption from the financial statement presentation project
The AICPA has approved the IASB as a designated GAAP standards setter and many State Boards of Accountancy have done the same. This would theoretically permit certain CPAs to use IFRS for SMEs in the United States upon adoption by the IASB (if the applicable State Board of Accountancy permits this). The PCFRC has not taken an official position on this document but will be studying its applicability to U.S. private companies. At press time the IASB has not approved this document but, we have been told it intends to do so with one dissent (the representative from the United States). If private companies in the United States start to apply IFRS for SMEs, I am concerned that this may lead to "divergence" in private company accounting in the United States.
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