Asked why the panel on private company financial reporting appears to be favoring a separate standards board making modifications to existing U.S. GAAP (as compared to writing new standards) several members of the panel pointed to a simple factor – time.
“How we got to where we got to as a consensus answer is expediency,” said Daryl Buck, senior vice president and CFO, Reasor’s Holding Company Inc., during a session at the AICPA’s Council meeting in New Orleans on Sunday. “Most panel members thought there needs to be some meaningful change made in the short term. [A] model [with] a separate set of standards may sound good, [but] in the short term, we can’t get there fast enough.”
Last fall, the Council discussed major exploration of a self-contained standalone GAAP for private companies, yet the majority of blue ribbon panel members have so far recommended starting with existing GAAP and then making changes, said panel moderator Robert R. Harris, 2009-2010 AICPA chairman. Harris then asked the panelists why they thought the blue ribbon panel went that route. (For more on the panel’s most recent decisions, see “Panel Majority Signals Support for Separate Board, U.S. GAAP Exceptions for Private Companies.”)
David Morgan, co-managing partner of Lattimore, Black, Morgan, and Cain, PC, agreed with Buck.
“Public company GAAP is deviating further and further from what’s needed in the private-company world. The most important thing we can do is fix it and fix it quickly,” he said.
AICPA President and CEO Barry Melancon provided some background on sentiments expressed by the panel since it formed in December 2009:
“The panel very clearly early on said no change was not acceptable, but looked at the change management process and some of the challenges associated with education, training and moving a new system through the process,” Melancon said. “It was agreed you have to work through a system that moves fairly smoothly and is not too disruptive.”
The model the majority of the blue ribbon panel recommended, “GAAP with exceptions for private companies,” would result in a new board that would set private company accounting standards by modifying FASB standards. Melancon said he did not favor reinventing standards, but rather that he envisions a new board that would modify FASB standards by switching on or off certain provisions as appropriate for private companies.
Several blue ribbon panel members say an eventual transition to separate standards may lie ahead, but most panelists felt such a dramatic shift would take too long, delaying needed change.
The discussion moved to why the majority of blue ribbon panel members supported having a separate board, not FASB, set standards for private companies under the oversight of the Financial Accounting Foundation, FASB’s parent organization.
Melancon and Judith O’Dell, who chairs FASB’s Private Company Financial Reporting Committee, seemed confident that a separate board is needed.
O’Dell noted the “amazing changes” she has seen in recent months, including a FASB board member attending every PCFRC meeting, a new protocol stating that FASB must consider during any exposure draft whether it should apply to private companies, and the expansion of the board to seven members from five.
However, she said, “a lot of people were voting for the second board idea because they felt they couldn’t trust FASB given the history—not the people, but the process.”
Billy Atkinson, chairman of the National Association of State Boards of Accountancy, cautioned against adding a separate board.
“We need to be confident the process that exists today is so broken we can’t fix it,” he said. “The problem is the majority of us [believe] we’re at war with FASB.”
Buck, one of the PCFRC’s founding members, acknowledged that committee members have grown increasingly frustrated over the years.
“We felt our concerns were valid, but not heard,” he said. “The reason we came to a consensus a separate board needed to be formed was to ensure some action was taken.”
Taking Action
After the blue ribbon panel makes its recommendations to FAF in January, FAF is expected to consider those recommendations at its February meeting. Harris pointed out that, under FAF’s due process procedures, it should be expected that FAF would expose for public comment any changes it considers. O’Dell said she believes that if FAF were to issue recommendations for comment after its February meeting, the comment period would extend beyond tax season to give practitioners time to respond.
Harris asked panelists what needs to be done to “energize AICPA members like never before on a topic that’s very important to this economy and the country.”
Panelists pointed out that the users of private company financial statements normally don’t respond in official letters during public comment periods, which is likely why their opinions aren’t heard until standards have already been implemented. If they want their voices to be heard, now is the best time to express their opinions, panelists said, adding that means that CPAs must encourage their clients to write comment letters as well.
“Well-crafted comment letters catch the attention of standard setters,” Buck said. “If you care about it, you owe it to yourself and your clients to speak up. The implications of what comes out of this are going to carry forward for a long time to come.”
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