Department's Response to the Financial Accounting Foundation's Plan to Establish the Private Company Standards Improvement Council
January 13, 2012
Financial Accounting Foundation
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
Re: Private Company Plan
To the Board of Trustees of the Financial Accounting Foundation:
The New York State Department of Financial Services (DFS) appreciates the opportunity to respond to the Financial Accounting Foundation's Plan to Establish the Private Company Standards Improvement Council (PCSIC). The New York State legislature created DFS by merging the New York State Banking and Insurance Departments on October 3, 2011. We are a user of financial statements based on U.S. GAAP, and we regulate both publicly-traded and privately-held companies.
In past comment letters -- such as the November 2007 and April 2009 letters to the Securities and Exchange Commission (SEC) -- the New York State Banking Department strongly opposed bifurcation of accounting standards. We continue to believe that a so-called big GAAP/little GAAP approach is not in the best interests of investors and other users of financial statements, since it would reduce comparability between institutions, introduce confusion, and reduce confidence in accounting and financial reporting. We are pleased that the Financial Accounting Foundation agrees that big GAAP/little GAAP "is not a desired outcome."
While we prefer a single set of simplified accounting standards, the proposal is an acceptable compromise, especially with the planned comprehensive review of the PCSIC process after three years. We are hopeful that PCSIC may lead to simpler accounting standards for all entities.
We have several additional points for your consideration:
- A significant open question which should impact accounting standards is whether or how the SEC will integrate International Financial Reporting Standards with U.S. GAAP, especially in view of current international guidance for small and medium-sized entities.
- For banks, which must comply with the Federal Financial Institutions Examination Council's Call Report requirements, a determination that private companies will be permitted or required to make modifications to U.S. GAAP or follow a different accounting regime would necessitate a decision on whether to amend the Call Report. This could result in additional reporting burdens for affected institutions.
- We question whether having PCSIC meet four to six times per year is sufficiently active. We suggest that PCSIC meet at least monthly, with additional meetings if considered necessary.
- It appears PCSIC would have to rely on FASB's staff. We suggest that you consider allowing PCSIC to have its own dedicated staff.
- Private companies to be affected by any action should be clearly and explicitly defined.
Very truly yours,
Chief of Regulatory Accounting