FAF Rejects Independent Standard Setting Board for Private Companies
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By Anne Rosivach
A new council with the authority to identify, propose, and vote on specific improvements to U.S. accounting standards for private companies has been proposed by the Board of Trustees of the Financial Accounting Foundation (FAF).
Under the FAF plan, the new Private Company Standards Improvement Council (PCSIC) would identify propose and formally vote on specific exceptions or modifications to Generally Accepted Accounting Principles (US GAAP) for private companies. Changes approved by a two-thirds majority would be forwarded to the Financial Accounting Standards Board (FASB) for ratification, giving that board ultimate responsibility for private company standard setting.
The PCSIC would comprise between 11 and 15 members, appointed by the FAF trustees. The chairman of the group would be a member of the FASB and also would be appointed by the FAF trustees.
The FAF is the independent, private-sector organization responsible for the oversight and administration of FASB and the Governmental Accounting Standards Board (GASB), the standard setting bodies for U.S. public and private companies, not-for-profit organizations, and state and local governments.
The American Institute of Certified Public Accountants (AICPA), long a supporter of a separate standard setting board for private companies, issued a statement expressing profound disappointment in the FAF proposal. A separate standard setting board was the cornerstone of the Blue Ribbon Panel on Standard Setting for Private Companies' report, the AICPA said in their statement. The Panel consisted of a cross-section of leaders from financial reporting constituencies, including lenders, investors, owners, preparers and public accountants."
Support for a separate standards board is widespread among private company constituents who have concluded that the FASB is focused on the needs of public companies, issuing accounting standards that are irrelevant and/or too complex for private companies. "Three thousand private company constituents and a majority of the state CPA societies, representing more than a quarter million CPAs, have spoken. They want a separate independent standard setting board and they have sent letters to FAF asking for change," said Barry Melancon, the AICPA president and CEO.
"Over the years, FASB's main focus has understandably been on the needs of constituents of publicly traded companies," Melancon said. "The pent up frustration we are witnessing by the private company constituency is a direct result of that public company focus and not seeing that differences can be and are appropriate for private companies and their financial statement users."
"Unfortunately, FAF's proposal has failed to accept the views of the many voices of the private company constituency asking for a separate board," commented Paul Stahlin, AICPA chair. "We don't think the concerns of smaller private companies can be fully appreciated until there is an independent board dedicated and focused solely on the needs of private companies. Therefore, we will continue to ask our members and others who support more relevant, more cost beneficial standards for private companies to make their voices heard loud and clear that the best answer is an independent private company board."
Were the PCSIC to be formed, once its members were appointed, the new council, the PCSIC, jointly with the FASB, would develop a set of specific criteria to determine whether and when exceptions or modifications to US GAAP are warranted for private companies. Based on those criteria, the PCSIC would identify aspects of existing US GAAP that its members believe require exceptions or modifications and then vote on specific changes.
Changes approved by a two-thirds vote would be subject to ratification by the FASB and thorough due process, including public comment. Following the public comment period, the PCSIC would redeliberate the proposed exceptions or modifications at a meeting attended by the FASB members and vote on final changes. Following the vote, the final changes would be forwarded to the FASB for final ratification.
The FAF Board of Trustees is seeking public comment on the plan through January 14, 2012. Those who wish to comment on the plan should send via e-mail to PrivateCompanyPlan@f-a-f.org. Those without email should send their comments to "Private Company Plan—FAF," 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116.
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