Private companies hop aboard the EBR train

By Bill Sheridan
Statement Editor

Enhanced business reporting, or EBR, was created with public companies in mind, but its implications go much farther.

With the exception of public investors, private and public companies share many of the same stakeholders. In theory then, EBR — a more transparent reporting model that helps stakeholders see a company through management's eyes — will be just as relevant to private companies as to their public brethren.

Enter the AICPA's Private Company EBR Task Force. Its goal: to ensure that EBR guidelines are made scaleable for private companies.

"We want to make financial reporting more transparent at all levels and make sure users get the type of information they find important in their decision-making," said Harold Monk, CPA, CFE, managing partner of Davis Monk and Co. in Gainesville, Fla., and chair of the Private Company EBR Task Force.

Who benefits?

The audience for a private company's financial reports can include stockholders (typically family members and / or management), vendors, employees, government agencies, insurance companies and debt-holders, among others. According to task force member Tom Foard, each deserves the same type of informative business report that public-company stakeholders might receive.

"For instance, our debt is with Wachovia Bank," said Foard, who is chief financial officer for Publishers Circulation Fulfillment, a privately held company in Towson, Md. "Wachovia deals with public companies as well. Why wouldn't they want the same type of information from a private company like ours that they receive from an SEC reporting company?"

Beyond the financials, that information might include long-range plans, strategic initiatives, staffing trends, key performance indicators, growth potential, and management's assessment of risks and opportunities.

"I don't want to suggest that we're not happy with GAAP financial reporting; we are," Foard said. "What we are trying to do is build additional elements around that core. It's not just historical information, but forward-looking information as well."

Common themes

EBR might not be practical or appropriate for every private company. Small, family-owned entities that practice what Foard calls "shoebox accounting" — in effect, turning over a shoebox full of receipts and statements to their accountants at the end of each fiscal year — might not have the internal resources to produce enhanced business reports or may not find any relevance in creating enhanced business reports.

But Foard says EBR takes on added importance when companies begin to approach, say, $15 million or so in annual revenue.

"Once you get to that point, the business is becoming significant enough that a model like this may start to make sense," he says. "I think a lot of financial folks in private organizations would agree that not only is EBR good stuff, but we're doing a lot of it already. All we're trying to do now is agree on some common formats and themes that would allow a user to compare different entities on a common basis."

Some of those common themes are already starting to emerge. The Private Company EBR Task Force has developed a series of models that outline what an enhanced business report might look like. The task force used actual data from real companies to create the reports; only the names of the companies and their executives were changed. "This gives some realism to the quality of the examples being proposed," Foard said.

The task force also has developed a survey of private-company stakeholders in an effort to collect their views about the usefulness of the sample reports.

The sample reports and survey are available on the task force's Web site: www.ebr360.org/ContentPage.aspx?ContentPageId=8.

The next step, said Foard, is to create a consortium of users and preparers of private-company information who will help evaluate the EBR model elements and create buy-in among their colleagues.

"It's better to take more time up front and build a broad base of support from bankers, insurers, other users of the information, and from the folks who actually prepare this information," he said. "When we reach consensus about what the enhanced reporting model will be, the expectation will be that we'll actually get companies to produce this information and have broad support for it in the financial community."

Caroline C. Boudreaux, CPA, CSPM, a member of the Private Company EBR Task Force, contributed to this article.

Contact this Author: < William Sheridan > bill@macpa.org

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