Private Company Financial Reporting



During 2010, the Blue Ribbon Panel on Private Company Financial Reporting – consisting of a cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors – explored the changes necessary to best meet the needs of U.S. users of private company financial statements. In January 2011, the panel – which the AICPA, the Financial Accounting Foundation (the FAF, which oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board) and the National Association of State Boards of Accountancy sponsored – finalized its recommendations on the future of standard setting for private companies and submitted a report to the FAF. FAF Trustees discussed the report at a February 2011 meeting and formed a Trustee Working Group in March to address accounting standard setting for nonpublic entities and gather public input.


It’s critically important that CPAs, their private company clients, small businesses and their financial statement users – especially bankers/lenders, sureties and insurers, and venture capitalists – participate in the process and help effect the historic change needed in financial reporting. The time to shape the outcome is now.


Recommended Changes


The two most significant Blue Ribbon Panel recommendations are that:


  • A new, separate board with standard-setting authority be established under the oversight of the FAF. The board would coordinate activities with the FASB but not be subject to FASB approval.
  • Changes and modifications be made to existing and future GAAP that recognize the unique needs of users of private company financial statements. All such changes would reside in the FASB Accounting Standards Codification®.


AICPA’s Position on Panel’s Main Recommendations


The AICPA supports the panel’s main recommendations that change in financial reporting for private companies is long overdue and that a separate, autonomous standard-setting body is necessary for effective private company reporting to become a reality.


Separate Board Is Critical for Effective Private Company Accounting Standards


Years of studies and research, a joint advisory committee with the FASB (i.e., the Private Company Financial Reporting Committee), private company constituent representation on the FASB board and comment letters on proposed accounting standards in the past have not yielded meaningful results. The AICPA believes it is imperative that there be a board made up of private company constituents who would set the different standards affecting the private company financial reporting system.


Private Company Financial Statement Users Agree Change Is Needed


Many constituents – including lenders, investors and owners – question the relevance and usefulness of a number of current GAAP standards as they relate to private companies. In fact, the Blue Ribbon Panel listened to users at its first meeting and this group also was represented on the panel. Users appreciate that certain standards need to change to bring balance to the cost-benefit equation.


Cost Also Is a Factor for Change


CPAs are aware that U.S. GAAP has become exceedingly complex as business has become complex. A lot of that complexity arises out of publicly traded companies and the role they play in the economy. Too much of what is included in current financial statements is not useful to private company owners, lenders and investors. As a result of this complexity, not all private company financial reporting is cost beneficial.


Shape the Future of Private Company Financial Reporting


The FAF places a lot of importance on the amount of interest in a subject, the diversity of stakeholders represented and the input from certain critical groups relevant to particular issues. Make your voice heard. Write a letter to the FAF and make three points:


  • There is a systemic problem that has not been fixed despite decades of attempts.
  • Significant differences to the standards within GAAP are necessary to recognize the unique needs of private companies and their financial statement users.
  • A new, separate standard-setting body needs to be created that would report directly to the FAF but not be subject to the FASB’s approval.


It is best if you write your own letter conveying your point of view and experiences. But if you prefer assistance, you can customize a letter using the AICPA’s letter-writing tool available at


You can provide additional support by educating other stakeholders and urging them to write letters as well. The letter-writing tool is available to everyone, and an education toolkit is accessible from the website to help you explain the issue.


March 1972 Report of the Study on Establishment of Accounting Principles, AICPA ("Wheat Report")
March 1972 to February 2005 Numerous studies and reports on GAAP for private companies
February 2005 Private Company Financial Reporting Task Force Report, AICPA ("Castellano Report")
May 2005 AICPA Council directs AICPA management to work with FAF and FASB to explore GAAP for private companies
June 2006 Invitation to Comment, Enhancing the Financial Accounting and Reporting Standard-Setting Process for Private Companies, FASB
January 2007 AICPA and FASB start Private Company Financial Reporting Committee
October 2009 AICPA Council expresses overwhelming support for GAAP differences for private companies
December 2009 AICPA Council, FAF and NASBA announce formation of Blue Ribbon Panel
October 2010 AICPA Council adopts resolution supporting the work of Blue Ribbon Panel
January 2011 Blue Ribbon Panel releases final report


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