PCFR Talking Points

April 30, 2010

Private Company Financial Reporting Talking Points

  • The AICPA has established a Private Company Financial Reporting Task Force to study the topic of financial reporting for privately-held businesses.
  • Former AICPA Chairman Jim Castellano chairs the task force, which is initiating a healthy and rigorous dialogue with all constituents.
  • The task force's mission is to determine whether or not general purpose financial statements of private, for-profit entities, prepared in accordance with generally accepted accounting principles (GAAP), meet the needs of all constituents of that reporting.
  • A related question is whether or not the cost of providing all that is required in GAAP financial statements is justified by the related benefits to private company constituents
  • The task force members include highly-respected and qualified representatives from various stakeholders in the private company marketplace, including lenders, investors, preparers, and practitioners.

Why Now?
  • This is a topic that many who are active in the CPA profession have heard about from others in the profession.
  • It is a fact that the majority of CPAs work in the private company environment.
  • Many CPAs are independent accountants who compile, review and audit financial statements. Many others serve as financial officers employed by companies who prepare and distribute financial information to third parties.
  • This discussion has come up often over the years and under various names within the profession.
  • However, some concerns that have long been bubbling up are coming to the fore in the post-Sarbanes-Oxley environment. These include:
    • Some frustration with the relevance of the current body of GAAP literature to smaller, private companies
    • The belief among some CPAs that lenders dont appear to be using all of the GAAP information required in financial statements
    • The cost/benefit equation for private companies of certain reporting and disclosures which may have been designed primarily for public companies
    • A trend in recent efforts by the Financial Accounting Standards Board toward convergence with international accounting standards and fair-value accounting.
  • CPAs are very aware that FASB has some very heavy responsibilities to deal with issues in the post-Enron public company environment and that they are now essentially financed by the SEC registrant community.
  • And let me add that most members of the CPA profession understand and agree that this is the way it needs to be and are very supportive of FASB in this regard.
  • Again, these are not necessarily seen as bad trends.
  • But there are some concerns being expressed that private businesses and the CPAs that serve them may not get the appropriate attention in this new environment.
  • Some have pointed to recent or proposed FASB standards as examples demonstrating the concerns of closely-held businesses.
  • The task force has begun a grass roots effort to speak with all constituents of private company financial reporting, with a particularly strong focus on the external users of that reporting.
  • We are taking unprecedented steps to reach out to those users at the grass roots level.
  • This will be a very open and objective effort with no pre-conceived notions as to the final outcome.
  • In fact, the strategy for the task force is to first determine if traditional GAAP financial statements of private companies meet the needs of constituents.
  • If, at the conclusion of this dialogue, it is determined that constituents needs are not met, it will be the task forces purpose to define the issues and propose solutions on behalf of the profession.
  • The AICPA believes that the CPA profession needs to and is in the best position to take the lead on this effort. But this must be an initiative involving all of us who have a strong interest in the quality of financial reporting for private businesses.
  • Therefore, the Task Force will be enlisting the help of a number of stakeholder organizations, including those representing lenders, venture capitalists, business owners, financial executives, sureties, contractors as well as the state CPA societies.