Should the Financial Accounting Standards Board wait for input from the expected to be established Private Company Standards Improvement Council (PCSIC) before issuing a discussion paper related to the private company decision making framework? Moreover, should the new council—rather than FASB—be the one to issue the paper?

During FASB’s May 10 liaison meeting with members of the Small Business Advisory Committee and the Private Company Financial Reporting Committee, Stephen Bodine, a Principal at LarsonAllen LLP and member of the PCFRC, said the board needed to be cautious about sending an unintended message.

Bodine said the board should clarify that the discussion paper was to assist the proposed council so that it would not be misconstrued that FASB was making the biggest decision on behalf of the proposed council.

“I think it’s very important as you do whittle this out to make it clear that this is being rolled out to assist the council, but at the same time you can’t say we’re helping your council by—in essence making the most important decision first,” Bodine said.

“I also would like to reiterate that a concept statement would work well for this type document,” he said.

The decision-making framework is an especially critical and important effort since it is expected to be used when it comes to mapping out differences in U.S. generally accepted accounting principles (GAAP) for private companies. FASB Chairman Leslie Seidman stated that it was because the board was not making a decision was “the deliberate reason why this is being issued as a staff document.”

“We do not want to go ahead of the council that is likely to be set up,” said Seidman. “We think it’s extremely important that there be a joint dialogue and joint buy in to any framework moving forward. So I take your point about messaging…the exact reason why this is a staff document is to avoid the misperception that the board is locking the council into anything,” she said.

It is FASB’s potential continuing role over private company GAAP that has garnered heavy public criticism from the American Institute of Certified Public Accountants, including concerns related to “systemic issues” inherent in having one body focus on both private and public company issues.

During a May 14 education session, a FASB Practice Fellow, Kevin Catalano, said the board would issue the discussion paper by June 30 as an invitation to solicit public comment. The discussion paper would represent staff views, input and comment from FASB members but does not reflect any deliberative decisions reached, said Catalano, nor does it represent any official positions of the board or any tentative conclusions reached by the board.

“The board has not yet deliberated the topics that are included in the materials,” said Catalano. “The idea was to have the staff put together a draft in consultation with board members and board member input, but to solicit public input before the board starts to deliberate and make tentative conclusions,” he said.

The initial draft was completed by the staff and has been reviewed by members of the PCFRC as well as the private company resource group, the group formed to help the staff develop the draft.

Underlying the basis of the framework, said Catalano, are six significant factors that the staff identified as the most differentiating financial reporting considerations of public companies compared with private companies:

• types and number of financial statement users;
• access to management;
• investment strategies;
• ownership and capital structures;
• accounting resources; and
• learning and education.

The Discussion Paper is broken into five interrelated modules:

• recognition and measurement
• disclosure
• display or presentation
• effective date
• transition method.

The framework guidance itself as designed is limited to fairly short documents, between two to five pages depending on a module, including in some cases an illustrative flow chart, Catalano explained to FASB members.

The point of the framework was to make it a sort of an easy reference tool for the board to use and refer back to as they think through whether or not there should be differences for private companies as different topics are being deliberated.

Those modules are then accompanied by more robust basis for the staff recommendations that support it. Catalano stated that the purpose was three fold:

• to prevent the staff/board from having to continually revisit some of the reasons that underlie the framework decisions
• to drive consistency and help when decisions are reached that there should be differences to help in the documentation; and
• to provide the ultimate basis for conclusion and any for any subsequent Accounting Standard Update as to why those decisions were reached.

By Denise Lugo
Bloomberg BNA Staff Correspondent