After conducting extensive research to ensure the
opinions of all constituents were heard, the Private
Company Financial Reporting Task Force has unanimously
recommended that a process be established to evaluate
potential changes to generally accepted accounting
principles to improve the usefulness of financial
reporting for private companies.
Specifically, the task force’s recently released
report said that GAAP for private companies should
be developed based on concepts and accounting that
are appropriate for the distinctly different needs
of constituents of that financial reporting. The report
also concluded that although GAAP exceptions and other
bases of accounting are being used and are sometimes
appropriate, these exceptions and other bases of accounting
are not the best response to the private company financial
reporting findings identified in the study.
These conclusions are based on independent research
conducted among more than 3,700 lenders, investors,
sureties, business owners, financial managers and
public accounting practitioners, as well as the perspectives
and experiences of the task force members. The task
force brought together by the AICPA consisted of representatives
involved with private company financial reporting,
including private company business owners and financial
managers, practitioners, lenders, investors, and a
former standards setter. The task force was led by
Jim Castellano, a past AICPA chair. More information
about the task force, its process, and its report
can be found at www.aicpa.org/members/div/acctstd/pvtco_fincl_reprt/index.htm.
Key Findings
The task force’s research found that the key
constituent groups rated the overall value of GAAP
as fairly high in such areas as consistency and in
usefulness as a tool in capital allocation decisions.
All key constituent groups, however, rated too many
GAAP requirements as needing to be more relevant and
useful. The task force also found that a majority
of each key constituency that had an opinion believes
it would be useful if the underlying accounting in
GAAP reporting were different, in certain instances,
for private companies than it is for public companies.
Support for this concept has grown considerably over
the years. For example, when asked a similar question
regarding GAAP differences in 1983, 9% of financial
statement users (mostly lenders) agreed and 65% of
them disagreed. Now, 51% of lenders/creditors agree
and 33% disagree.
In light of these research findings, the task force
is calling for standards that focus specifically on
the information needs of the key constituents of private
company financial reporting. The task force expects
that the ensuing standards will result in high-quality
financial information that is no less in quality than
that provided about public companies. Each company
and its stakeholders would decide what standards make
sense for them.
Next Steps
The Institute has already taken steps to address its
members’ needs related to this issue. The AICPA
Board of Directors has expressed its support, subject
to the input of the AICPA’s governing Council,
for the task force’s findings and conclusions.
The Institute has informed various key constituent
organizations about the task force report to give
them an opportunity to begin digesting the information.
The Institute will work with the Financial Accounting
Standards Board and the Financial Accounting Foundation
on the next steps to address this issue, with the
shared and unwavering goal of meeting the needs of
the constituents of private company financial reporting.
