Prominent CPA Firms and Private Companies Demand Action from the Financial Accounting Foundation
99 Percent of the Almost 2800 Letters to FAF call for FAF to Create an Independent Board to set Separate Standards for Private Companies
Published September 22, 2011
New York (Sept. 22, 2011) – Many private company constituents want change in the way financial statements are prepared. For far too long, requests for the creation of relevant standards to address the financial reporting needs of America’s privately held businesses have been ignored. CPAs serving and working at private companies believe now is the time for the Financial Accounting Foundation to create a separate board to set those standards for privately held companies, which make up about 50 percent of the U.S. economy. This board must not be subject to veto power by the Financial Accounting Standards Board.
In a letter to the FAF, H. Nichole White, vice president / controller of First Capital Bank, Richmond, Va., wrote, “Financial reporting for private companies has become too costly and complex and these businesses are at risk because of these standards. It does not make practical sense to incur significant costs to comply with standards that have become ever more irrelevant in the private company world.”
In 2009 the American Institute of Certified Public Accountants, the FAF and the National Association of State Boards of Accountancy created the Blue Ribbon Panel on Private Company Financial Reporting to explore the changes necessary to best meet the needs of U.S. users of private company financial statements. The members of the Panel were comprised of a cross-section of financial reporting constituencies, including lenders, investors and owners, as well as preparers, auditors and regulators. On Jan. 26, the Panel presented its report to the FAF. The supermajority of the Panel overwhelmingly called for the creation of an independent board, not subject to veto power by the FASB to make modifications to GAAP for privately held enterprises.
“We believe that the disclosure and reporting requirements have become overly burdensome and complex for the private companies and not-for-profit organizations and are not always in line with the needs of the primary users,” Joe Adams and Richard Day, the managing partner/CEO and national director of accounting, respectively, of McGladrey & Pullen, LLP— wrote in their letter to FAF. “While public and private companies share many of the same concerns about the complexity and the costs of preparing GAAP financial statements, the primary focus of the users of the public company financial statements is to obtain information that is useful for making investment decisions, while the users of most private company financial statements (typically owners and lenders) are more focused on obtaining information that is relevant to managing the business and making credit decisions.”
James Morrison, CFO, Teknor Apex Company, Pawtucket, R.I., stated in his company's letter to the FAF,“A new, separate body with standard-setting authority should be established under FAF and not subject to FASB approval. The reasoning is that we need professionals who are fully engaged in the private sector, and not focused on public accounting reporting. The development of these standards should not be an “after thought.”
“This is just a sampling of the letters the FAF has received demanding the creation of a separate board to alleviate an irrelevant financial reporting burden,” said Barry Melancon, AICPA president and CEO.