By Anne Rosivach
Frustrated with the slow progress made by the Financial Accounting Foundation (FAF) in response to the Blue Ribbon Panel's call for separate accounting standards and a separate standard-setting board for U.S. private companies, auditors, private company executives, and lenders have submitted a large number of comment letters to FAF's Web site in support of separate standards.
Although the FAF has not yet made a formal request for comments on the issue, more than 1,500 unsolicited FAF Comment Letters on private company standards have been published on the foundation's site to date. Most support the conclusions of the Blue Ribbon Panel; some recommend governance alternatives.
State societies are actively supporting the goal of separate standards and are encouraging their members to express their views. The boards of the Indiana, Missouri, and Texas state societies of CPAs have passed resolutions supporting separate standards and separate oversight by FAF. A link is provided in these resolutions to the American Institute of Certified Public Accountants' (AICPA) resource page, Letter to the Financial Accounting Foundation that members may use when drafting letters.
"Our members -- from large regional firms, large local firms, and all the way to sole proprietors are frustrated", Gary Bolinger, president and CEO of the Indiana CPA Society (InCPAS)" told AccountingWEB",because they believe that many standards are irrelevant to their clients and interested third parties. Furthermore, it is unreasonably expensive to comply with many standards that are irrelevant for many privately owned companies."
The board of the Missouri Society of CPAs (MSCPA) voted unanimously to approve the resolution "because they feel that it is time for a change", Butch E. Beeman, CPA, chairman of the board, stated. "Accounting standards are not working for small businesses. The standards are geared toward large public companies with complex, often international issues. Yet at this time, the disclosure, presentation, and reporting requirements are the same for large global corporations and small businesses. The users of private company financial statements are the owners and their lenders and the statements need to be relevant to them.
"Our board also agreed very strongly that a separate standard setting board, not subject to the Financial Accounting Standards Board's (FASB) approval, would be required for the changes to take place", Beeman stated. FASB is responsible for establishing financial accounting standards in the U.S.
The separate needs of private companies have been discussed and studied by accounting organizations and FASB for over 30 years, but the standards setting process has not changed to meet these needs, despite the efforts of those who participated in the discussions.
"Many of our members believe that FASB doesn't care what they think", Bolinger stated, adding that",in a few weeks, I will be giving 16 presentations to 2,200 of our members and I will be adamant that people must communicate to the FAF."
In the past year, FASB has made changes to its board and is increasing its outreach to private companies. In a June 17 Webcast, the inaugural "FASB Update for Nonpublic Entities" speakers said that the board had received very few comment letters from private company financial statement users on exposure drafts – less than 10 percent of the total comment letters – although they were hoping that as constituents become more familiar with a new electronic format the number would increase.
The MSCPA's Accounting and Auditing Committee will be writing comment letters on exposure drafts of accounting standards on behalf of its members. "We thought that coming from a committee of our board, these responses might get more attention", Beeman said. Committee members, who volunteer, will meet quarterly to review FASB's calendar and identify issues in which volunteers are needed to comment.
After completing their review of the conclusions of the Blue Ribbon Panel, FAF set up a Trustees' working group to study separate standards for "nonpublic entities", a category that includes private companies and nonprofit organizations. FAF has indicated on its Web site that it expects to publish an exposure draft on standard setting for nonpublic entities by the fall of 2011.
But speaking before the Ohio Society of CPAs, Barry Melancon president and CEO of the AICPA and a member of the Blue Ribbon Panel said he feared the FAF's review process is akin to starting the Blue Ribbon Panel's work over again, and the AICPA is asking CPAs to join a letter writing campaign to the FAF to push for acceptance of the Blue Ribbon Panel recommendations.
The board of the Ohio Society of CPAs has voted its support for separate standards, but it is reviewing the proposal for a separate standard setting board.
FASB staff has been involved in developing a differential framework for private company standards. FASB has published an initial assessment of the differences in the ways that private company financial statements are used by lenders, investors and others.
The Blue Ribbon panel was formed by the FAF, the AICPA and National Association of State Boards of Accountancy in 2009 to look at the process of standard setting from a policy standpoint.