A comment period on private company financial statements that already has produced more than 6,500 letters has left the Financial Accounting Foundation (FAF) trustees with a lot to consider, FAF President and CEO Terri Polley said Thursday.
Speaking at a North Carolina Association of CPAs meeting that was simulcast on the Web, Polley said the input has been helpful. The deadline is Saturday for comment letters on a FAF proposal that has been strongly contested by the AICPA because it would continue to give FASB the final decision on any modifications to U.S. GAAP for private companies.
FAF’s Oct. 4 proposal called for the creation of a Private Company Standards Improvement Council (PCSIC) to recommend changes to U.S. GAAP for private companies. Those recommendations would be subject to FASB approval.
Polley said the FAF trustees believe it’s important to have a single GAAP and keep standard setting under one organization. The AICPA believes an independent board under FAF’s supervision is the best mechanism for accommodating the needs of private companies that struggle with certain complexities and costs of U.S. GAAP that many deem unnecessary for nonpublic entities.
“I would definitely envision that there will be some changes from what the trustees have proposed,” Polley said in an interview after Thursday’s speech. “How substantive they will be, that remains to be seen, and (the trustees) are the ones that are going to have to make that decision.”
AICPA leaders were disappointed when FAF rejected the recommendation of a Blue-Ribbon Panel that suggested the establishment of an independent, authoritative standard-setting board to modify U.S. GAAP for private companies. The panel was sponsored by the AICPA, FAF and the National Association of State Boards of Accountancy.
The AICPA supports a separate board to meet the needs of private companies, arguing that FASB’s understandable slant toward public company oversight creates regulations that too often are burdensome, costly and unnecessary for smaller, private companies.
“Over the years, FASB’s main focus has understandably been on the needs of constituents of publicly traded companies,” AICPA President and CEO Barry Melancon said in a statement in October. “The pent up frustration we are witnessing by the private company constituency is a direct result of that public company focus and not seeing that differences can be and are appropriate for private companies and their financial statement users.”
FAF proposed instead creating the PCSIC, which would not be independent because any proposed changes to U.S. GAAP and FASB agenda projects would have to be approved by FASB. The PCSIC chair would be selected and appointed by the FAF trustees and would be a FASB member with experience in private company reporting.
“I think the trustees’ view is that … as we’ve been moving over the last 10 years or so … there should be a single standard setter,” Polley said. “But we understand some of the challenges that some of the complex accounting presents to smaller practitioners, smaller companies, etc. Trustees certainly believe there is room for differences and that the process will be informed by a new group (the PCSIC) that will provide those recommendations.”
Polley said that having a FASB member chair the PCSIC would give the private company board an advocate walking the halls of FASB’s offices in Norwalk, Conn.
FAF plans to hold public round-table meetings on the issue on Jan. 18 in Atlanta; Jan. 26 in Fort Worth, Texas; Feb. 7 at Stanford University in California; and March 1 in Boston.
Polley said she expects the FAF trustees to announce their final plan after the round-table meetings, in the early spring.
—Ken Tysiac ( email@example.com ) is a JofA senior editor.
More from the JofA: