In the News: Private Company Standards are Coming
The big accounting news this week was the Financial Accounting Foundation’s Wednesday announcement that it was creating a body to set differences in U.S. generally accepted accounting principles, where appropriate, for privately held companies. The private company standards set by the new Private Company Council might make it easier for the roughly 28 million privately held companies in the United States to follow certain accounting standards.
The AICPA announced its support for the Private Company Council on Wednesday shortly after the news broke.
“With the news announced today by the FAF, we recognize and appreciate that the FAF has taken solid steps in the right direction regarding the Private Company Council. The AICPA is encouraged by this approach and awaits more of the details of the FAF decision. We look forward to continuing to work together to effect meaningful changes in U.S. GAAP for private companies and the users of their financial statements,” said Melancon,
The creation of the council comes in response to a report from the Blue-Ribbon Panel on Standard Setting for Private Companies that the FAF, the AICPA and the National Association of State Boards of Accountancy formed in late 2009. The report, issued in January 2011, called for, among other things, a separate standard-setting board to be established under the FAF.
The Wall Street Journal noted that the FAF proposed a version of the council last fall, initially called the Private Company Standards Improvement Council, whose recommendations would need to be ratified by Financial Accounting Standards Board and would be chaired by a member of FASB. The AICPA said that proposal did not go far enough in separating the council from FASB control and organized a letter-writing campaign that generated thousands of comments to the FAF from CPAs and private company stakeholders.
The new council will have the ability to identify, deliberate and vote on any proposed changes, which will be subject to endorsement by the FASB, which the FAF oversees, and be submitted for public comment before being incorporated into GAAP.
The Journal of Accountancy highlighted some additional details about the creation of the council. The Private Company Council chair will not be a FASB member, as originally proposed. The council will determine which elements of existing GAAP to consider for possible exceptions or modifications by a vote of two-thirds of all sitting members, in consultation with FASB and with input from stakeholders.
Also on Wednesday, the AICPA announced plans to develop an “other comprehensive basis of accounting” financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises, as well as the users of the financial statements of these entities.
“One-size U.S. GAAP does not fit all companies, especially smaller privately held businesses,” said Gregory J. Anton, CPA, CGMA, chairman of the board of directors of the AICPA. “We recognize that the FAF has moved in the right direction and the AICPA will continue to be fully engaged with the FAF and the Private Company Council. While doing so, we will also use our resources and expertise to develop an enhanced OCBOA financial reporting framework that is objective, relevant and responsive to the concerns of preparers and users of small and medium private company financial statements where GAAP financial statements are not required.”
The SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to U.S. GAAP for SMEs that do not need U.S. GAAP financial statements.