The final report of the Blue Ribbon Panel to the Financial Accounting Foundation (FAF) recommended a new, separate standard-setting board for private companies and modifications to U.S. GAAP for private companies. FAF, the oversight body for the Financial Accounting Standards Board (FASB), discussed the report at their February 15th meeting and is expected to release a proposal for public comment this spring.
“This was an overwhelming recommendation from the diverse panel members to establish a separate private company board with urgency,” American Institute of Certified Public Accountants (AICPA) President and CEO Barry Melancon said. “This issue has been discussed for 30-plus years and the time for FAF to act is now."
In a video message on the AICPA’s comprehensive Web site, Private Company Financial Reporting, Melancon strongly urges CPAs, small businesses, lenders, and other users of financial statements to become engaged and show active support by writing a high volume of comment letters to FAF’s proposal.
“Private company constituents must take the time to learn about the proposal, and show their support,” Melancon said. “This is an historic opportunity to make a significant departure from the past, to determine the future of financial reporting for the 29 million private companies in the U.S. . . . We must take this to fruition now. We may never again have the opportunity.”
Unlike other committees that have for decades looked at the problems of private companies from the perspective of individual standards, the Blue Ribbon Panel, formed by FAF, the AICPA and National Association of State Boards of Accountancy (NASBA) in 2009, was asked to look at the process of standard setting from a policy standpoint. The panel considered the relevance of current standards to private companies and the unique needs of users of private company financial statements, who are principally lenders and sureties, Melancon said.
Melancon envisions the new board operating something like an ON-OFF switch for existing U.S. GAAP as they apply to private companies. When the Board decides a standard is relevant to private companies, it activates an ON switch. When the Board decides a standard should be modified for private companies it pushes the OFF switch until modifications are made.
Paul V. Stahlin, chairman of the board of the AICPA and the regional president of Skylands Community Bank, urged AICPA members in a video message to, “Let FAF know that you support private company accounting standards. That kind of input is critical to effectuate change.”
Others, including CPAs serving private companies and participants in the Blue Ribbon Panel, also discuss some of the problems faced by clients and their auditors with current accounting standards. Some say their relationship to their clients has been adversely affected by the unnecessary complexity of some current standards. Clients are unhappy with the time and work involved in preparing financial statements that in the end they don’t understand.
Blue Ribbon Panel members, including Judy O’Dell, chairman of the Private Company Financial Reporting Committee, and Daryl Buck, who was recently named to the FASB Board, reviewed the panel’s discussions and reiterated the need for comments.
Remarks by Billy Atkinson, past chairman of the NASBA, a dissenting Blue Ribbon Panel member, were included in FAF’s February meeting press release. Atkinson stated that the problems of complexity and relevance of today’s accounting standards were not unique to private companies and that “the best approach for needed change is through the existing FAF-governed FASB, which should be more strategically aligned to continuously address these concerns. In our view, a separate accounting standard-setting body for private companies would lead to differential standards and result in other unintended consequences. We urge the FAF to carefully consider the potential effect on the financial reporting system.”