Following the announcement by the Financial Accounting Foundation on May 23, 2012 that it would create the Private Company Council, which the American Institute of CPAs supports, the Institute announced its plans the same day to develop an “other comprehensive basis of accounting” (OCBOA) financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises (SMEs), 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.”
The new Financial Reporting Framework for Small- and Medium-sized Entities, which will be self-contained and which the AICPA expects to expose for comment this fall so it will be ready for use in 2013, may be used by these businesses when U.S. GAAP financial statements are not required or needed. The financial reporting framework will draw upon a blend of accrual income tax methods and other traditional methods of accounting.
The FAF’s action stems in large measure from the foundational work conducted by a blue ribbon panel formed in 2009 by the AICPA, the FAF and the National Association of State Boards of Accountancy, which included lenders, investors and owners as well as preparers, auditors and regulators. After receiving the panel’s report in January 2011, the FAF gathered input from stakeholders, and released a proposal last fall. The vast majority of stakeholders agreed with the panel that action must be taken to make private company financial statements more relevant, less complex, and cost-beneficial, said AICPA President and CEO Barry C. Melancon, CPA, CGMA.
FAF President and CEO Terri Polley said, “We welcome the AICPA’s support for the Private Company Council and for our efforts to improve the standard-setting process for private companies. We also believe that the AICPA’s plan to develop a financial reporting framework for smaller private entities, which would be used as a form of OCBOA reporting where appropriate, is an important and complementary undertaking. Taken together, these actions demonstrate the commitment of both organizations to the private company financial reporting constituency.”
For more information about the upcoming OCBOA financial reporting framework for smaller businesses, read the June 7, 2012 Journal of Accountancy article and a FAQ and visit the resource page on the AICPA website.