With busy season for many of our practitioners well behind us, it’s time to resume our focus on one of the most critical issues facing our profession, many of our clients, most of the country’s employers and those who rely on our services. I’m talking about an issue that’s near and dear to me, a priority for my term as AICPA chairman and as president of a community bank. It is private company financial reporting.
You may recall that in 2010 a Blue Ribbon Panel on Private Company Financial Reporting
, sponsored by the AICPA, the Financial Accounting Foundation (FAF, which oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board) and the National Association of State Boards of Accountancy, explored the issue of private company reporting from a policy perspective. In other words, the panel didn’t look at individual standards, but instead looked at the standards collectively from a conceptual standpoint and asked, “Should the underlying accounting be different, where appropriate, to recognize the needs of private companies and their financial statement users?”
In late January of this year, the panel completed its work when it handed off to FAF a report calling for historic change. The panel’s two most significant recommendations are that:
- A new, separate board with standard-setting authority be established under the oversight of FAF. The board would consist of 5-7 members with private company constituent experience and work closely with the FASB.
- Changes and modifications be made to existing GAAP to accommodate private companies’ circumstances that are different from public companies. All such changes would reside in the FASB Accounting Standards Codification®.
FAF has since formed a Trustee Working Group to address accounting standard setting for nonpublic entities (including nonprofits). To gather public input on the panel’s proposals and other issues, FAF recently began an outreach effort to individuals and advisory groups. In a March 4 statement, FAF said it will seek feedback from stakeholders and constituent groups as well.
And that’s where you come in. It’s critically important that CPAs, their clients, small businesses and their financial statement users, especially bankers/lenders, get involved and help achieve the seminal change that we’ve long needed in private company financial reporting. Send a comment letter to FAF supporting the panel’s major recommendations and do it now. Emphasize that a separate, autonomous standard-setting body is the only way to get effective private company standards in the long run. We've developed an easy letter-writing tool you can use to prepare a letter based on a model or to write one of your own.
I also personally appeal to you to champion the cause, educating others on this issue and urging them to tell FAF they agree with the Blue Ribbon Panel. Users of financial statements are an especially significant constituency for FAF to hear from, and FAF needs to hear the message loud and clear. The website includes an education toolkit designed to help you get others informed and writing letters.
We believe that effective private company standards can only be realized with a standard-setting entity working directly under FAF and not subject to FASB approval. Proof that this is the case exists in the decades of alternatives that haven’t brought meaningful change to accounting standards for private companies. We’re at a tipping point, and the time is now.
We have a lot of information and resources to help you understand this issue. Make sure to read the backgrounder and the FAQ on aicpa.org/privateGAAP. They'll tell you everything you need to know.
FAF anticipates issuing an action plan in fall 2011. Make your voice heard today and help direct the future of private company financial reporting. It’s now or never, and private companies need it to be now!!