The blue ribbon panel on private company financial reporting is heading down a path to recommend that the Financial Accounting Foundation, FASB’s parent organization, accept U.S. GAAP with exceptions for private companies and that those standards should be set not by FASB but by a separate board under FAF’s oversight.
A majority of the panel members who expressed their opinions supported this model and structure, including AICPA President and CEO Barry Melancon.
“I’m pleased the majority of the panel members supported the bold step of a new, separate private accounting standards board under the FAF’s oversight,” Melancon said in a statement following the meeting. “An important benefit of having a new board is to help ensure the needs of the private company sector are appropriately addressed in the standard-setting process.”
Staff will draft a list of recommendations prior to the panel’s Dec. 10 meeting and hash out how they can be accomplished. The panel is expected to make recommendations in a report to FAF in January 2011. The report will be public.
The other members supported a reconstituted FASB. Billy Atkinson, chairman of the National Association of State Boards of Accountancy, one of the panel’s three sponsoring organizations, voiced support for a single board to ensure that the standard setters are “at the same table” when it comes to making decisions.
“The FAF and its processes for the oversight of standard setting are sound,” Atkinson said in a statement. “The real challenges ahead are the important public policy issues associated with the debate.”
Panel members who support a separate board said there should be a system of checks and balances to ensure FASB’s perspective is kept as a frame of reference to the private company board, and vice versa. One way to keep that alignment could be by a member of each board having a non-voting seat at the other board’s meetings, some said.
Even most of the members who support keeping private company financial reporting standard setting under FASB said the board needs more private company representation and that while the recent change to a seven-member board from five is a step in that direction (especially if the additional members are from the private company sector), it is not enough.
FAF President Terri Polley acknowledged this need both in the meeting and in an official statement: “It’s important that our trustees have a thorough understanding of the issues affecting private company standard setting as they consider the entire standard-setting system,” she said. “The FAF stands ready to carefully consider improvements in standard setting under its oversight.”
Some panel members said they would like to recommend a separate set of standalone GAAP standards for private companies but recognized this transformation could take a lot of time and wanted to make changes more rapidly.
There was a strong desire by many to see an evolution to a separate set of standards at some point in the future. Panel members also expressed strong support for a “sunset” period (somewhere between two and five years) so they can assess whether the recommendations are working and whether additional tweaks or changes need to be made.
Friday’s meeting was the fourth meeting of the 18-member panel, which was created in December 2009 to provide recommendations on the future of U.S. accounting standards for private companies.
The discussion that took place followed an overview of the more than 140 public comments FASB received in response to a series of questions relating to private company financial reporting. Comments overwhelmingly said that there is a systemic problem related to GAAP for private companies.
The 18 panel members and participating observers represent a cross section of financial reporting constituencies, including lenders, investors and owners, as well as preparers, auditors and regulators. The panel is chaired by Rick Anderson, CEO of Moss Adams LLP.
The panel is part of a joint effort by the AICPA, the FAF and NASBA.
The panel’s next meeting will take place Dec. 10 in Norwalk, Conn. At that meeting, the members will fine-tune the draft recommendations presented by staff.
Alexandra DeFelice (email@example.com) is a JofA senior editor.
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