The Construction Financial Management Association (CFMA) has encouraged the Financial Accounting Foundation (FAF) not to follow through with a plan to create a Private Company Standards Improvement Council (PCSIC) without further outreach to address various CFMA concerns. Under FAF’s plan, PCSIC would identify, propose, deliberate, and formally vote on specific exceptions or modifications to U.S. Generally Accepted Accounting Principles (GAAP) for private companies.
In a letter to FAF, association President and Chief Executive Officer Stuart Binstock reported that the members of his group “clearly express[ed] a lack of unanimity” on this topic and argued that more consideration of the plan is necessary. In attempting to create a stance on the plan, CFMA management surveyed its membership and received a wide range of opinions. CFMA’s general members represent contractors, developers, construction managers, architects, engineers, principals, and material and equipment suppliers. Associate members include the accounting, insurance, surety, software, legal, and banking specialists who serve the construction industry.
Binstock pointed out that while 35 percent of survey respondents favored the option of “creating a new, autonomous, and authoritative standard-setting board for private company issues, under the oversight of the FAF, as recommended by the Blue-Ribbon Panel on Standard Setting for Private Companies,” 38 percent of respondents have not formed an opinion on this issue.
“Comments from the open-ended survey section further solidified the lack of consensus within
our membership, exhibited by the following submissions,” Binstock said:
“Agreement with the FAF Proposal:
‘I believe that an independent board, under the direction of the FAF, would help to take some of
the political considerations out of the standard-setting process and would add some simplicity
and common sense to the standard-setting process.’
“Disagreement with a Separate Set of Standards for Private Companies:
‘I do not recommend a separate set of standards for private companies. Readers of financial
statements should be able to obtain the same information about a company whether it be a
private or public company.’
“Opposition to Financial Accounting Standards Board (FASB) Oversight of a Proposed PCSIC:
‘Despite the strong recommendations of the Blue Ribbon Panel on Standard Setting for Private
Companies, and upon receiving support for those recommendations from many constituents,
FAF’s proposal does not contemplate the creation of an authoritative independent standard
setter for private companies. The new [PCSIC], as proposed, does not solve the systemic problems that exist with standard setting for private companies because it requires [FASB] to ratify any suggested modifications. I urge the establishment a new independent standard-setting body whose decisions would not be subject to the FASB approval process. It is the best way to make meaningful financial reporting changes for private companies a reality.’
“Support for Private Company Standards:
‘Private companies have vastly different reporting and creditor requirements than not-for-profit
entities and should not be lumped together by the FAF.’
“Thoughts on the Industry and Its Accounting Board and Foundation:
‘The FAF/FASB has greatly diminished the usability of financial statements over the last 10 years and has undermined the usefulness of primary financial reporting.’
‘This is an interesting topic as it would maybe save some dollars for private companies in
audit/review fees, but not sure how the banking/bonding industry would go for financials that
aren't prepared in accordance with GAAP.’
“With our members clearly expressing a lack of unanimity on this issue, the crux of our response is to encourage the FAF not to take any action without further outreach to address these varied concerns,” Binstock said. “With the majority of respondents (62 percent) having spent less than one hour researching or discussing this important subject and almost all respondents (91 percent) looking for additional education from CFMA on the topic, more time will be needed to accomplish this.”
FAF scheduled to end its public-comment period for this proposal Jan. 14 with roundtables taking place early this year. The organization’s Board of Trustees announced that it would make a final decision after reviewing and considering public input. FAF expects PCSIC to consist of 11-15 members, representing investors, lenders, auditors, accountants, and others “with broad experience in using and preparing private company financial statements.”
Changes approved by a two-thirds majority of PCSIC would be forwarded to the FASB for ratification. The changes would become final following public comment, further deliberation by PCSIC, and final ratification by FASB. PCSIC would replace the Private Company Financial Reporting Committee, a FASB advisory-only body established in 2006.
“Establishing this new council with the power to deliberate and vote on accounting changes --subject to FASB ratification -- is the best way to significantly strengthen the standard-setting process for private companies,” FAF Board of Trustees Chairman John Brennan said. “This approach reflects not only the judgment of the trustees but the views of a broad cross-section of constituents from whom we heard during our extensive outreach effort.”
Once its members are appointed, the PCSIC, jointly with the FASB, would develop a set of specific criteria to determine whether and when exceptions or modifications to U.S. GAAP are warranted for private companies. Based on those criteria, the PCSIC would identify aspects of existing U.S. GAAP that its members believe require exceptions or modifications and then vote on specific changes.
FAF Official Provides CPC/BIM More Details About the Organization’s Plan
In an email interview with Construction Project Controls and BIM Report, FAF spokesperson Robert Stewart provided the following additional information about the plan:
CPC/BIM: What is the current scheduled timetable for finalizing the plan? When may the Board of Trustees vote on the plan, and how soon could the PCSIC be formed and begin deliberating?
Stewart: Our expectation is that the plan will be finalized in the second quarter of this year.
CPC/BIM: How many roundtable meetings have been held so far? How many more are expected? Will there be a meeting specifically to address the concerns of construction financial professionals?
Stewart: We’ve held three roundtables so far -- in Atlanta; Fort Worth, Texas; and Palo Alto, Calif. The fourth and final roundtable will be held in Boston on March 1.
CPC/BIM: What is FAF’s response to CFMA President Binstock’s letter to FAF about the PCSIC, either to his entire letter or to individual statements made within it?
Stewart: We’re not in a position to respond to specific comment letters on an ad hoc basis, but we very much appreciate all of the input we have received in the public comment process. Those comments will be instrumental in helping the trustees reach a well-considered decision on how to move forward to achieve the goal of putting greater focus on private companies in the standard-setting process.
CPC/BIM: Would FAF consider delaying adoption of the plan until CFMA comes to more of a consensus on the issue? How long could the plan be postponed?
Stewart: The plan was released in October, and we expect that the trustees will make a final decision on how to move forward during the second quarter of this year.
CPC/BIM: How likely is it that the 11-15 member council would include a representative whose primary interest is the construction industry?
Stewart: It would be premature to comment on any questions about the composition of the new organization before the trustees have made a decision.