The Financial Accounting Foundation, FASB’s parent organization, on Tuesday issued a proposal that would create a Private Company Standards Improvement Council (PCSIC) to determine whether exceptions or modifications to U.S. GAAP are required to address the needs of users of private company financial statements.
FAF proposed that the 11- to 15-member council would conduct a review of existing U.S. GAAP, identify standards that require reconsideration and vote on possible exceptions or modifications for private companies. But any proposed changes to existing U.S. GAAP would be subject to ratification by FASB, which is contrary to a key recommendation made earlier this year by a blue-ribbon panel on private company financial reporting. The panel, sponsored by the AICPA, FAF and the National Association of State Boards of Accountancy, called for a separate board overseen by FAF but with standard-setting authority independent of FASB.
“We are profoundly disappointed that the Financial Accounting Foundation (FAF) is not proposing to create a new independent board to set differences in U.S. GAAP standards, where appropriate, for privately held companies,” said the AICPA in a statement. “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, AICPA president and CEO.
FAF said its trustees concluded that creating a separate standard-setting board for private companies would likely lead to the establishment of two separate sets of U.S. accounting standards—a so-called “little GAAP” for private companies and a “big GAAP” for public companies, which it said is not a desired outcome.
Under FAF’s proposal, the PCSIC chairman, who would be selected and appointed by the FAF Trustees, would be a FASB member with substantial experience with private companies. The council would be overseen by the FAF Board of Trustees.
Comments on the plan are due Jan. 14. FAF Trustees will make a final decision on the plan following the end of the comment period.
A separate board to set differences in U.S. GAAP standards, where appropriate, for privately held companies was the cornerstone of the Blue-Ribbon Panel on Standard Setting for Private Companies’ report. The panel consisted of a cross section of leaders from financial reporting constituencies, including lenders, investors, owners, preparers and public accountants.
“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,” Paul Stahlin, AICPA chair, said in the press release.
“Without the addition of a separate board, the goal of true private company financial reporting differences will not be consistently achieved,” the AICPA press release said. “Unfortunately, now nine months after the panel issued its report and after receiving more than 3,000 letters with 99 percent support for the panel’s recommendations, the FAF has proposed a solution that continues to miss the mark.”
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