Private Companies Can Provide Input, Receive Info From Web Portal Offered By FASB

Earlier today, the FASB announced the launch of a 'web portal' in which private company stakeholders can learn how to provide input to the FASB on matters relating to private company standard-setting, and obtain updates on related developments. Visit FASB's Non-Public Entity Web Portal, read more in FASB's Press Release.

PwC Recommends FAF Form Advisory Committee On Reducing Complexity

In a June 28, 2011 Point of view article entitled, “Reducing Complexity,” audit firm PwC called for the formation of an advisory committee by the Financial Accounting Foundation, to advise the FASB on reducing complexity in accounting standards. PwC notes:

Accounting and financial reporting complexity continues to increase, presenting challenges for investors, preparers and auditors. While some complexity is necessary, complicated scope provisions, exceptions to general principles, and overly detailed guidance often make standards difficult to understand, interpret, and apply. New standards continue to be issued, further adding to complexity.

In our Point of view on reducing complexity in financial reporting, we note unnecessary complexity diminishes the value of accounting and reporting for
investors, who may look elsewhere for information. Complexity is also costly for
preparers (and investors who ultimately bear such costs), and the costs may not
be commensurate with the benefits to investors.

Given the above, we recommend the Financial Accounting Foundation establish
an advisory committee to the Financial Accounting Standards Board (FASB) focused
on complexity. The committee, comprised of a variety of stakeholders, would
advise the FASB on sources of complexity in existing accounting standards and
standards under development, and help propose balanced solutions that improve
the quality of information for investors while reducing complexity.

Related SEC Initiatives: Pozen Committee (CiFIR), 2011 Fin. Reporting Series

Among the Q&A's included at the conclusion of the PwC's paper, the firm references some related efforts headed up by the SEC to address complexity in financial reporting including the work of the SEC Advisory Committee on Improvements to Financial Reporting (aka "CiFIR" or the "Pozen Committee" for committee chairman Bob Pozen), as well as the SEC's upcoming Financial Reporting Series.

With respect to the work of the Pozen committee (CiFIR), which issued its report and recommendations in 2008, including recommendations aimed at accounting standard-setting, PwC says:

Our proposal, while consistent with the spirit of those recommendations, is different because it focuses on establishing a sustainable mechanism to address both existing
complexity and potential complexity through involvement early in the standard-setting process. We believe that our proposal addresses the necessary mechanism, process, and resources to help achieve the goal of reducing complexity.

Regarding the SEC's upcoming Financial Reporting Series, PwC notes that, in addition to having the advisory committee on complexity conduct a survey of all constituents of financial reporting (users, preparers, auditors, others), "The committee also would consider any complexity-related suggestions from the [FAF's] new post-implementation review process and the SEC's planned Financial Reporting Series of round tables."

My Two Cents
(I remind you of the disclaimer posted on the right side of this blog.)

An interesting point made by PwC is that the work of an advisory committee focused on reducing complexity can benefit private companies and public companies.

The firm observes that FASB resources have been directed at convergence with IFRS (note: in my view, this relates mainly, but not entirely, to public companies, given the SEC's current consideration of whether to permit or require public companies to report using IFRS instead of U.S. GAAP). Before leaving the topic of convergence, PwC states:

We observe that the current uncertain path toward convergence with, or possible
adoption of, international standards represents a major challenge. Some may question why the complexity issue should be addressed at this time. To us, too much complexity already exists in both sets of standards. This means that focusing attention on developing a systematic process for addressing this issue and getting started now are important.

PwC also observes that the FASB's existing advisory groups include advisory groups on private companies (which in my view, are looking for, in part, simplification of standards designed or driven by the needs of public companies, investors, regulators or analyts, but are viewed by some as needlessly complex for private companies and the users of private company financial reporting.)

A key point that lies below the surface of some of the discussions of the need to simplify private company accounting, (such as the deliberations of the Blue Ribbon Panel on Standard-Setting for Private Companies, whose report and recommendations are currently under consideration by the FAF, which is conducting outreach to obtain constituent views; see also FEI CPC-S position) is that public companies and the users of public company financial reporting are looking for, and could benefit from, a reduction in complexity in financial reporting as well.

This is particularly the case regarding accounting standards that appear to reflect 'unneccesarily complexity" - i.e., beyond that required by the level of complexity of the underlying transaction or economic event itself.

Complexity is exacerbated, however, for private companies and their users, when certain levels of complexity appear to follow from the needs of certain public company constituents, whereby the resultant reporting is either not as relevant or not as cost effective for private companies and the users of their financial statements, based on the differing needs of public vs. private company users, and different forms of access to information. [UPDATE 6:12 PM - This afternoon, FASB announced the launch of a web portal for nonpublic entities. ]

As noted by PwC, if a broad based advisory committee on complexity were formed, such as recommended by the firm, "Its output would benefit all companies."

Read more in PwC’s Point of View: Reducing Complexity.

FASB Parent - FAF - Seeks Trustees; IASB Parent - IFRSF - Seeks IFRS Advisory Council Members

On Friday, June 24, the Financial Accounting Foundation (which oversees the FASB and GASB) published a call for nominations to fill vacancies on the FAF board of Trustees. On the same day, the International Financial Reporting Standards Foundation (which oversees the IASB) announced a call for nominations to fill vacancies on the IFRS Advisory Council.

What Does It Take To Be An FAF Trustee?
"Ideal candidates" for FAF Trustee positions are described in the FAF's press release as follows:

• The ideal candidates will be highly regarded within their profession, possess an understanding of the U.S. and global financial and capital markets, and have a strong appreciation for the importance to the markets, the investment community, and the public at large of independent standard setting for financial accounting and reporting. Candidates will be committed to the mission of the FAF, FASB, and GASB, demonstrate a concern for the public interest, and have an appreciation for the varying interests and perspectives of investors and other users of financial information and the preparers and auditors of financial reports.





• In addition to the attributes described above, the FAF currently is seeking senior-level professionals with backgrounds and experience in one or more of the following areas:





• Using financial statements, including those of private companies or of state or municipal governments





• Leading smaller and/or private companies





• Leading not-for-profit organizations.

FASB Board Appointments, Funding, Among Duties of FAF Trustees
Primary duties of the FAF Trustees are described as follows:

• To monitor, on an ongoing basis, the activities of the FASB and the GASB and their due process practices, policies and procedures, including agenda setting, solicitation and consideration of public comments, post-implementation evaluation of the effectiveness and efficiency of their standards and standard-setting activities, and their performance within the context of their mission statements.
  



• To appoint the Chairs and members of the FASB, GASB, and their advisory boards.




• To approve the short and longer range strategic plans of the FAF, FASB and GASB, and monitor the progress in implementing such plans.




• To advocate publicly on behalf of the independent standard setting process.




• To conduct periodic reviews of the structure for establishing and improving financial accounting and reporting standards in such scope and at such times as the Trustees shall determine.




• To oversee the finances, arrange and advocate for appropriate resources and funding, and approve the budgets of the FAF, FASB, and GASB.

The deadline to submit nominations for FAF Trustees is July 29. Details about the nomination process can be found in the FAF's press release.

IFRS Advisory Council To Turnover In Full in 2012
On the international accounting standard-setting front, the IASCF's press release notes:

The terms of all existing members of the IFRS Advisory Council expire at the end of December 2011. This will conclude the third iteration of the IFRS Advisory Council, which was the first one where individuals served as representatives of organisations that have an interest in standard-setting.

To aid in transition, while the terms of all IFRS Advisory Council members will end this year, the IFRS Advisory Council chair and vice chairs have been reappointed for terms ranging from one to three years. Additionally, terms of new members of the council will be staggered.

As background, the reference above to the 'third iteration' of the IFRS Advisory Council, with its emphasis on members serving on the council who represent 'organizations that have an interest in standard-setting,' follows from the restructuring of the IFRS Foundation's former 'Standards Advisory Committee" or SAC in 2008, one among a number of changes undertaken by the IASB and the IFRS Foundation following the IASB's 2008 Constitutional Review.

Representation Sought From Regional Standard-Setters, SMEs, More
Although the core framework of the IFRS Advisory Council will remain, according to the IFRSF's press release, the IFRS Foundation is seeking to expand the council's membership in certain key areas, described below (emphasis added).

Based upon the input received from the Advisory Council and others, the Trustees have agreed to keep the current representative model for membership. Furthermore, while the Trustees recognise that the IFRS Advisory Council is quite large, the Advisory Council’s chairs and vice-chairs, who have been reappointed, and members generally, believe that the size is manageable and
necessary to have the necessary broad range of interested parties represented
around the table. The Trustees have supported this view.

In terms of the composition of the Advisory Council’s membership, the Trustees have also accepted the broadly held view that the general mixture of perspectives is
appropriate.

At the same time, the Trustees will be making some minor modifications:

•Inviting regional standard-setting bodies to join, instead of national standard-setters currently serving: The Trustees wish to encourage the development of regional bodies. A global National Standard-Setter group exists, and regional bodies exist or are in the process of being established in Africa, the Americas, Asia-Oceania, and Europe. The Trustees will ask the heads of these groups to serve on the Advisory Council, rather than individual national standard-setters themselves.

•Seek further participation from the academic community, other internationally recognised professional bodies with an interest in financial reporting not currently represented, and the SME community

•Add greater participation from developing markets (including Asia and the Middle East) and other economies committed to IFRS adoption

As noted in the IFRSF's advertisement for nominations to the IFRS Advisory Council, the deadline for nominations to the IFRS Advisory Council is September 19.

IASB Issues Additional Guidance For Private Co’s On IFRS for SMEs

Earlier today, the IASB published additional guidance relating to IFRS for Small and Medium-Sized Entities, in the form of the first set of final Q&As developed by the IFRS for SMEs Implementation Group. The IASB's action is detailed below, as well as an update on FAF/FASB consideration of private company standard setting.

The thrust of IFRS for SMEs, published in July, 2009, is to provide a simplified set of self-contained GAAP for private companies; that is, the essense of the definition of 'SME' set forth in the IASB's IFRS for SMEs is not so much based on size per se, but based on companies that are not publicly listed and do not have 'public accountability' such as certain financial institutions and certain other types of companies, as defined in the IFRS for SMEs document. A good source of basic information, providing a basic walkthough of what IFRS for SMEs is all about, can be found on the IASB's About the IFRS for SMEs webpage.

The additional guidance published today, IFRS for SMEs Q&A 2011/01: Use of IFRS for SMEs in a Parent [Company's] Separate Financial Statements, was developed by the IFRS for SMEs Implementation Group (SMEIG), after being released in draft form earlier this year, and approved for publication by the IASB. Here is additional information about the role and composition of the SMEIG.

Additional information about IFRS for SMEs available on the IASB's website includes Presentations about the IFRS for SMEs. Among the presentations currently posted includes a January, 2011 presentation by IASB Board Member Paul Pacter (presented at a AAA meeting), provocatively entitled: Why the World Needs A Separate Standard for Private Companies, and Why the U.S. Does, Too.

FAF, FASB Consideration of Private Co. Standard-Setting
On the subject of the consideration of private company standard-setting in the U.S., the Financial Accounting Foundation, which oversees the FASB, has received over 800 comment letters regarding the January, 2011 recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies.

Many of those letters, beginning with Comment Letter # 5 filed in early June, follow from points suggested by the AICPA to its members, supporting the recommendation made by a majority of the Blue Ribbon Panel to have not only differential standards for private vs. public companies, but a separate standard-setter, side by side with the FASB.

In contrast, the comment letter filed by FEI's Committee on Private Company Standards in April, as previously reported here, suggests that an alternative path to providing focus on the needs of private companies and the users of their financial statements, without forming a separate standards-setting board, could potentially be achieved by forming a Private Company Task Force (PCTF), empowered with the ability to establish guidance, modelled after the Emerging Issues Task Force (EITF).

Additional information about the FAF's outreach on standard-setting for private companies can be found on the FAF's Standard-Setting for Nonpublic Entities webpage. You can also view the archived webcast of the FASB: In Focus webcast originally presented on June 17: FASB Update for Nonpublic Entities.

PCAOB Concept Release Issued Today Calls For 'AD&A,' Assurance On Additional Info, More

Earlier today, the PCAOB voted to issue a Concept Release on the Auditor's Reporting Model. As noted in the PCAOB's press release:



Auditor's Discussion & Analysis

Joining the ranks of the 'MD&A' (management's discussion and analysis) and 'CD&A' (compensation discussion and analysis) required of management by the SEC, would be an 'AD&A' (auditor's discussion and analysis), as set forth in the PCAOB's Concept Release.



Assurance On Other Information; Clarification of Language

Other ideas included in the Concept Release address required and expanded use of emphasis paragraphs; auditor assurance on other information outside the financial statements, and

clarification of language in the standard auditor's report.



Public Comment Sought via Comment Period, Roundtable

The public comment period on the Concept Release closes on September 30.



The PCAOB also announced today they will hold a public Roundtable in the third quarter, 2011 to obtain additional feedback on the Concept Release.



Further information is available in the PCAOB's Fact Sheet; the archived webcast of today's PCAOB board meeting will be posted by the PCAOB within 24 hours. See also related items for this Concept Release in the PCAOB's Rulemaking Docket No. 034.

FASB, IASB Amend Standards For Presentation Of Comprehensive Income, OCI

On June 16, 2011 the Financial Accounting Standards Board and the International Accounting Standards Board issued amended standards for the presentation of comprehensive income and other comprehensive income (OCI). In the U.S., the amendment was issued as Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The IASB effected the change by amending IAS 1, Presentation of Financial Statements.

As noted in FASB's press release:

...(ASU) No. 2011-05 Comprehensive Income (Topic 220): Presentation of
Comprehensive Income... is intended to increase the prominence of other comprehensive income in financial statements.

In US GAAP, the ASU will supersede some of the guidance in Topic 220 of the accounting Codification.

The main provisions of this Update provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one or two consecutive financial statements:

- A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income.

- In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.

The option in current GAAP that permits the presentation of other comprehensive
income in the statement of changes in equity has been eliminated.

As noted in the IASB's press release:

...the amendment [to IAS 1] ... will improve and align the presentation of items of other comprehensive income (OCI) in financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) and those prepared in accordance with US generally accepted accounting principles (GAAP).

The amendments to IAS 1 Presentation of Financial Statements require companies preparing financial statements in accordance with IFRSs to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements.

Read more in this edition of KPMG's Defining Issues.

FASB, IASB To Re-Expose Rev Rec For 120-Day Comment Period

Earlier today, FASB and the IASB announced they will re-expose an Exposure Draft of their proposed Revenue Recognition (‘Rev Rec’) standard. The re-exposure document will reflect changes agreed to by the boards based on their discussion of comment letters received on the original Exposure Draft.

According to this FASB-IASB press release, the boards plan to release the updated Exposure Draft in the third quarter of 2011 for a 120-Day comment period.

FASB Decides To Exempt Private Cos. From Certain Rev Rec Disclosures
In related news, at last week’s FASB meeting, the board decided to exempt private companies from certain disclosure requirements in its upcoming standard on revenue recognition. Other matters discussed at the board meeting included revenue recognition: rate regulated entities, financial instruments, and investment companies. Details are in this FEI Summary and FASB's Summary of Board Decisions.