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Robert Durak

Should You Support an Independent Board for Private Company GAAP Modifications?

AICPA urges CPA support. Says FAF proposal falls short of what’s needed for real change.

January 9, 2012
by Robert Durak, CPA

After reviewing the Blue Ribbon Panel on Standard Setting for Private Companies’ recommendations and reaching out to private company stakeholders and advisory groups for input, the Financial Accounting Foundation (FAF) on October 4 released for public comment its Plan to Establish the Private Company Standards Improvement Council (PCSIC). The AICPA immediately issued a statement expressing its profound disappointment in the proposal, which requires that the Financial Accounting Standards Board (FASB) review and ratify the planned council’s decisions.

The PCSIC’s lack of standard-setting authority independent of the FASB renders it essentially a continuation of the current Private Company Financial Reporting Committee (PCFRC), which has met with some success but has not yielded the meaningful results that were anticipated during its five years of operation. The PCFRC is a joint effort of the AICPA and the FASB, and a FASB staff member chairs the committee. The PCFRC would be disbanded under FAF’s proposal.

The Blue Ribbon Panel’s recommendation for a board not subject to the FASB approval process was based on a supermajority of panel members. The 18-member panel represented various private company constituencies and met with lenders, investors and others to gain insight into the needs of private company financial statement users. The FAF, the AICPA and the National Association of State Boards of Accountancy (NASBA) sponsored the panel.

FAF made its decision to forego an independent board despite the panel’s recommendation and letters of support from 3,000 private company constituents and a majority of the state CPA societies. At the AICPA’s governing Council meeting in October, Council members overwhelmingly passed a resolution urging FAF to adopt the panel’s recommendation for an independent board. The resolution also said that while the AICPA’s preference is for FAF to create the new standard-setting board, if FAF continues to pursue its current proposal, the AICPA will consider other options. This could include creating a separate standard-setting body to develop private company Generally Accepted Accounting Principles (GAAP) or a comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting.

The AICPA further believes a separate, independent board for private companies is necessary because FASB is rightly focused on public company reporting, and on the convergence of U.S. standards with International Financial Reporting Standards (IFRS).

Comment letters to FAF on the proposal are due January 14. The AICPA has created an online tool that enables CPAs and others to take just 30 seconds to send a comment letter to FAF immediately. The prewritten comment letter focuses on the need for FAF to establish the authoritative standard-setting board for private companies. To sign the letter or get additional information, visit www.aicpa.org/privateGAAP.

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Robert Durak, CPA, is senior technical advisor, AICPA Accounting Standards and Private Company Financial Reporting Committee.