With the vast majority of U.S. businesses being privately owned, the American Institute of Certified Public Accountants is formally studying whether there are issues with private company financial reporting.
An Institute-convened group, the Private Company Financial Reporting Task Force, is charged with reaching out to all constituents of that reporting given concerns that have arisen partly in the wake of the Sarbanes-Oxley Act of 2002.
"The majority of AICPA members work in private companies and are involved in financial reporting," said James Castellano, a former Institute Chairman who heads the task force. "A number of them have expressed concern about GAAP-based financial statements and their use by private businesses and external stakeholders."
Castellano enumerated some of the concerns:
- Some frustration with the relevance of the current body of GAAP literature to smaller, private companies
- The belief among some CPAs that lenders don’t 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.
“Many are aware that FASB has significant responsibilities as it deals with the post-Enron environment and that it’s now financed essentially by the SEC registrant community,” Castellano said.
Castellano said the Task Force will determine first if there is, in fact, an issue with traditional GAAP financial statements, particularly among those who rely on the statements when making lending, investing or other business decisions.
The Task Force will enlist the help of a number of stakeholder organizations, including the American Bankers Association, Financial Executives International, National Federation of Independent Business, and the state CPA societies, among others.
"This will be a very open and objective information-gathering process with no preconceived notions as to the final outcome," Castellano said.
Further information about the Private Company Financial Reporting Task Force may be accessed here.