NEW YORK (Oct. 4) - We are profoundly disappointed that the Financial Accounting Foundation (FAF) is not proposing to create a new independent board to set differences in U.S. GAAP standards, where appropriate, for privately held companies. This was the cornerstone of the Blue Ribbon Panel on Standard Setting for Private Companies' report. The Panel consisted of a cross-section of leaders from financial reporting constituencies, including lenders, investors, owners, preparers and public accountants.
“Three thousand private company constituents and a majority of the state CPA societies, representing more than a quarter million CPAs, have spoken. They want a separate independent standard setting board and they have sent letters to FAF asking for change,” said Barry Melancon, American Institute of Certified Public Accountants president and CEO. “Over the years, FASB’s main focus has understandably been on the needs of constituents of publicly traded companies. The pent up frustration we are witnessing by the private company constituency is a direct result of that public company focus and not seeing that differences can be and are appropriate for private companies and their financial statement users.”
For many years, the pleas of private companies to have differences in standards for private companies that are more cost effective and relevant for their users have too often been ignored. We understand and appreciate FASB’s need to focus on public company issues and emerging capital market concerns. And as we move forward, FASB’s focus will need to continue to be on the public market and on the convergence of U.S. Standards with IFRS, which themselves are focused on public companies. This clearly underscores the need for a separate independent board focused solely on the right standards for private company GAAP.
In essence the Panel’s report stated: The supermajority view of the BRP members is that the current FASB and even a restructured FASB cannot produce the needed exceptions and modifications to GAAP for private company financial reporting. Those BRP members believe that throughout its history, the FASB has been very heavily geared, in its composition and its processes, toward public companies. As a result, GAAP exceptions and modifications in recognition, measurement and presentation have been too rare and extremely difficult to achieve. Members of a board with authority to set accounting standards for private companies must possess the perspective of those stakeholders, and the FASB cannot be sufficiently restructured or possess enough of the essential private company representation needed to set GAAP differences for private companies.
“Unfortunately, FAF’s proposal has failed to accept the views of the many voices of the private company constituency asking for a separate board. We don’t think the concerns of smaller private companies can be fully appreciated until there is an independent board dedicated and focused solely on the needs of private companies. Therefore, we will continue to ask our members and others who support more relevant, more cost beneficial standards for private companies to make their voices heard loud and clear that the best answer is an independent private company board,” commented Paul Stahlin, AICPA chair.
The Blue Ribbon Panel and its diverse membership recommended the independent board for a reason. Without the addition of a separate board, the goal of true private company financial reporting differences will not be consistently achieved. Unfortunately now nine months after the Panel issued its report and after receiving more than 3,000 letters with 99 percent support for the Panel’s recommendations, the FAF has proposed a solution that continues to miss the mark.