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Independent Board is Needed for PCGAAP

Solve maze puzzleFor quite a while now, decades in fact, the accounting profession has been discussing the problems faced by private companies and the users of their financial statements because of a lack of relevance and unnecessary complexity in too many places in U.S. GAAP. The Blue Ribbon Panel on Standard Setting for Private Companies made recommendations earlier this year that gave us a greater sense of hope that real change was on the way. The Panel, formed by the AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy, came out with two significant recommendations that would permanently change private company financial reporting. One is differences in existing and future GAAP where warranted; the other is an independent board to set those differences. There is general consensus on the former; I want to focus on the latter.

On Oct. 4, FAF released its proposal on creating a new Private Company Standards Improvement Council. While the PCSIC would report into the FAF (through a subgroup of the Board of Trustees) and not the Financial Accounting Standards Board, its decisions would be subject to ratification by the FASB. That is unacceptable to us.

Without an autonomous board with standard-setting authority, we end up with nothing more than a continuation of what we’ve already had that didn’t work. The Private Company Financial Reporting Committee, for example, which is a joint effort of the AICPA and the FASB, didn’t get its major recommendations approved by the FASB (I’m referring to FIN 48 and 46R). Yes, the FASB has improved its responsiveness to private company issues lately, after the Panel started its work, but given the history and other pressures on the FASB, we cannot trust that this will be the case in the long run. We need a solution that will last.

Some may read FAF’s plan and think the planned council is a new and viable solution to the systemic problems in the current standard-setting process. But a careful analysis shows that is not the case. The proposed process, with FASB veto power at its core, is what we have today.

After FAF issued its proposal, AICPA Chairman of the Board Paul Stahlin, CPA, and I released a statement expressing our profound disappointment in it and pledged to continue the fight. But your help is an important part of winning this battle. We need you and your peers to a greater degree than ever. After almost 40 years of debate, two intense years of discussion with the Panel and then more study by FAF, it is unfortunate that the effort of thousands of you is still needed, but it is.

FAF will pay close attention to the comment letters it receives from private company constituents: preparers, auditors, lenders, investors, regulators and others.  Watch this video explaining the situation and send FAF a comment letter using our online resource. It’ll take just 30 seconds of your time, but you could be part of historic change. The comment deadline is Jan. 14, 2012.

On behalf of the accounting profession, private company owners, bankers and others, I thank you for your participation in this process. It’s one of the most important issues not only now, but for the future.

Barry C. Melancon, CPA, President and CEO, American Institute of CPAs.

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