Private companies would be able to choose and use only the GAAP exceptions or modifications that make sense for them in their financial reporting under a new proposal released Monday by FASB.
FASB and the Private Company Council (PCC) issued an Invitation to Comment on the private company decision-making framework. Comments are due June 21.
The decision-making framework will provide conditions under which the PCC can consider and vote on exceptions and modifications to GAAP for private companies. The PCC was formed last year, and its recommendations for exceptions and modifications are subject to endorsement by FASB.
In February, FASB and the PCC deliberated feedback on a previous Invitation to Comment that FASB issued on the private company decision-making framework in July 2012. As early as December of last year, PCC members largely opposed the “all-or-nothing” approach FASB originally proposed, which would have required private companies to use either all or none of the GAAP modifications and exceptions created through the PCC process.
The new proposal would allow a private company to select only the alternatives within GAAP for recognition or measurement guidance that it deems appropriate.
In addition, the new proposal would remove the presumption that industry-specific recognition and measurement guidance applies to users of both public and private company financial statements. This would open the door for exceptions and modifications for private companies with respect to industry-specific guidance.
“This proposed guide is intended to help the FASB and the PCC identify the unique needs of users of private company statements, while also reducing the complexity and cost of preparing those statements,” FASB Chairman Leslie Seidman said in a news release. “Stakeholders have already provided valuable input in the development of the guide, and we look forward to receiving additional feedback.”
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.