A common complaint among privately held companies is that the accounting standards under U.S generally accepted accounting principles (GAAP) are the same for them as they are for the largest of public companies. Recently a blue-ribbon panel, formed by the Financial Accounting Foundation (FAF, the oversight body of the Financial Accounting Standards Board (FASB)), the American Institute of Certified Public Accountants (AICPA), and the National Association of State Boards of Accountancy (NASBA), addressed this issue directly, effectively proposing to establish a new standard setting board for private companies. AICPA President and CEO Barry Melancon recently issued a video message on the AICPA’s website and commented:
“Private company constituents must take the time to learn about the proposal, and show their support… This is an historic opportunity to make a significant departure from the past, to determine the future of financial reporting for the 29 million private companies in the U.S. . . We must take this to fruition now. We may never again have the opportunity.”
While the proposals are still in the recommendation phase, this could represent a remarkable shift in financial reporting in the U.S, where there have historically been no differences in financial reporting between public and privately held entities. The FAF recently discussed the final report at its February 15 meeting, and it is expected to release a proposal for public comment this spring.
In a news release on January 26, 2011, the FAF describes the proposed changes, which would “focus on making exceptions and modifications to U.S. GAAP for private companies that better respond to the needs of the private company sector.” The FAF also discussed the establishment of a “differential framework - a set of decision criteria - to facilitate the standard setter’s ability to make appropriate, justifiable exceptions and modifications.”
While the ultimate resolution of the panel’s recommendation isn’t known at this stage, it is clear that the AICPA, NASBA and the FAF all have resources dedicated to the proposed change, and are looking toward their constituents to be active in the proposal phase.
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