Private Company Council
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| Private Company Council | |
|---|---|
| Name | Private Company Council |
| Formation | 2012 |
| Purpose | Advisory body for accounting standard alternatives for private entities |
| Headquarters | Norwalk, Connecticut |
| Parent organization | Financial Accounting Foundation |
Private Company Council
The Private Company Council was created to provide a formal advisory mechanism within the Financial Accounting Foundation framework to influence Financial Accounting Standards Board rulemaking for non-public entities, offering alternatives to standards previously issued for public entities. It serves as an interlocutor among Financial Accounting Standards Board, preparers, auditors, users, and stakeholders such as American Institute of Certified Public Accountants, Securities and Exchange Commission, and state-level legislative actors, aiming to reduce complexity and cost for private entities while preserving decision-useful information. The council’s activities intersect with major accounting topics embodied in Generally Accepted Accounting Principles (United States), International Financial Reporting Standards, and sectoral concerns raised by Small Business Administration constituencies.
Background and Establishment
The council was authorized following deliberations by the Financial Accounting Foundation in response to concerns raised by constituents including American Institute of Certified Public Accountants, National Association of State Boards of Accountancy, and industry associations such as U.S. Chamber of Commerce and National Federation of Independent Business about the applicability of standards like those in the aftermath of the Global Financial Crisis (2007–2008). The formation followed outreach to constituencies represented by advocacy groups such as Financial Executives International and Institute of Management Accountants, and drew on precedent from advisory bodies including the Emerging Issues Task Force and the Governmental Accounting Standards Board consultation mechanisms. In 2012 the Financial Accounting Foundation formally established the council to recommend exceptions or modifications to Financial Accounting Standards Board pronouncements for non-public entities.
Membership and Governance
Membership comprises representatives nominated by the Financial Accounting Foundation from preparers, auditors, and users, including leaders from firms and organizations such as Deloitte, PricewaterhouseCoopers, KPMG, Ernst & Young, Grant Thornton, and private company CFOs drawn from sectors represented by National Association of Manufacturers and National Retail Federation. Governance aligns with the Financial Accounting Foundation’s nomination, oversight, and due process, and members serve defined terms with publicized rosters and conflict-of-interest disclosures akin to those used by the Financial Accounting Standards Board and Public Company Accounting Oversight Board. The council coordinates with the FASB Private Company Council Reporting Model and consults with advisory groups including the FASB Advisory Council and constituent groups from the Federal Deposit Insurance Corporation and state regulators when relevant.
Standard-Setting Role and Process
The council evaluates proposed and existing Financial Accounting Standards Board standards to determine whether exceptions or modifications should be recommended for private entities, employing due process steps similar to those of the Financial Accounting Standards Board including issue identification, deliberation, exposure drafts, and final recommendations. It focuses on topics such as measurement, presentation, disclosure, and transition alternatives that affect reporting under Generally Accepted Accounting Principles (United States). The council’s decisions are documented in formal recommendations to the Financial Accounting Standards Board, which retains final authority to issue or amend standards. Interaction with international standard setters such as the International Accounting Standards Board occurs when cross-border private company convergence issues arise, and the council has coordinated on matters resonant with frameworks from International Financial Reporting Standards.
Key Decisions and Guidance Issued
Notable recommendations include alternatives for goodwill impairment testing that affected subsequent FASB updates, guidance on loan modifications and troubled debt restructurings, and simplifications relating to accounting for noncontrolling interests and consolidation for private entities. The council influenced implementation guidance for standards such as lease accounting that originated in Accounting Standards Update projects and provided comment and alternative pathways for adoption timelines and transition methods. It also addressed targeted relief on disclosure requirements and measurement bases in response to stakeholder input from organizations like Association of International Certified Professional Accountants and sector groups including National Association of Home Builders.
Impact on Financial Reporting and Adoption
The council’s recommendations have led to tailored accounting alternatives that reduced reporting complexity and compliance costs for many private entities, affecting financial statement presentation used by lenders, including regional banks regulated by Federal Reserve System-supervised entities, and users such as private equity firms and family office investors. Adoption patterns varied across industries represented by Construction Financial Management Association and Healthcare Financial Management Association, with some entities electing alternatives that altered impairment testing cycles and disclosure loads. The council’s work has also influenced educational curricula at institutions such as American Accounting Association-affiliated programs and professional development content provided by the AICPA.
Criticisms and Controversies
Critics argue that creating private-entity exceptions risks reducing comparability between private and public financial statements and could complicate due diligence for parties including Internal Revenue Service auditors and lender syndicates. Some commentators from organizations such as Public Company Accounting Oversight Board affiliates and academic researchers at universities like Columbia University, University of Chicago, and Stanford University have raised concerns about governance, transparency, and potential capture by large auditing firms. Debates intensified when the council recommended divergence on high-profile topics such as goodwill and leases, prompting responses from advocacy groups including Consumer Federation of America and investor coalitions that emphasize investor protection and standardized disclosure.