One of the top priorities of the NVCA CFO Task Force is to engage the Financial Accounting Foundation (FAF), the parent organization to accounting policy-maker FASB, as it undertakes a post-implementation review (PIR) of the fair value measurement and reporting rules. This rule set is widely known by its original name, “Financial Accounting Statement 157” or simply “FAS 157.” NVCA CFO Task Force members have been working at multiple levels to encourage a thorough review of this standard, which became effective in 2008. Since then, annual audit costs and efforts have grown far beyond what we believe the policymakers intended. It is not clear how much of the issue for U.S. venture capital firms is (a) the application of the standard by some auditors, or (b) the standard itself. Regardless, NVCA members have reported escalating audit costs and team distraction. Thus, NVCA and other industry groups asked FAF to undertake this PIR. We hope it is a first step in getting necessary relief.
FAF’s PIR process takes the form of a survey conducted by a neutral third party to gather input from a number of constituencies. Many members of the NVCA CFO Task Force members participated in the survey and encouraged their investors to do so also.
This survey took place in mid-September. Results of the review will be presented to FASB by the end of the calendar year for review and response. We hope that the feedback that FAF receives will be sufficient for FAF to recommend that FASB revisit the FAS 157 standard in light of the unintended consequences of its application. The timing won’t have a direct effect on 2013 audits because the recommendations are scheduled for delivery to FASB for review before calendar year end, but FASB’s formal response is not expected until early in 2014. That said, the fact that FAF has launched this PIR at NVCA’s urging has galvanized a number of constituencies that favor change.
For more background on accounting rulemaking as it affects the venture capital industry, and specifics on recent history, please refer to Appendix I of the NVCA 2013 Yearbook.