I have heard this debate since I was in college taking my intermediate accounting classes in the 1980s. What makes this real now? Why should you pay attention?
The tipping point toward the need for private company standards came after the announcement of FIN 48 and 46R. Many private companies have cried “uncle” as these extremely onerous and complex standards have continued to arrive on the scene.
The AICPA advocated for the need for differential private company standards and the FASB Private Company Financial Reporting Committee (PCFRC) was formed in June 2006 under the leadership of Judy O'Dell, a small practitioner from Maryland who has visited with us many times.
Yet, FASB ruled against the PCFRC's recommendations numerous times (including FIN 48 and 46R), causing the need for this Blue Ribbon Panel by its parent, the FAF, to look into the problem.
In October, the Blue Ribbon Panel of the Financial Accounting Foundation narrowed its recommendations to a separate private company board under the FAF (like GASB and FASB) to set “differential” standards for private companies. See FASB's press release here.
In my opinion, this structure would allow for the very different financial statement user needs to be addressed by a board dedicated to serving the needs of the private company. Our town hall meetings with MACPA members indicate growing support for this recommendation and significant support for separate private company standards in general.
The October meeting minutes of the BRP conclude with the key agenda item for the next meeting (to be held on Dec. 10): “Further discussion of the logistics and operationality of the separate private company board … before the recommendation(s) / report could be finalized and issued in January to the FAF trustees.”
The live broadcast of the Dec. 10 meeting can accessed through the following web site: http://fasb.trz.cc/live.php. The link to the live broadcast is usually posted the morning of the meeting.
The point is that this is finally real and could move to implementation in the next year or so. It is time to pay attention and be prepared to offer comments and suggestions as it moves to exposure draft.
The MACPA has formed a special committee to review these developments and represent our members in this historical debate. Here is a podcast about our task force and coverage on the latest developments by PCFRC Chair Judy O'Dell in an interview with our own Bill Sheridan.
Let's stop using the “Big GAAP / Little GAAP” reference. It is actually differential GAAP; the core body and process of GAAP will stay intact with exceptions or differences noted for private companies, as I understand it.
Here are some of the latest articles for more insights:
- Journal of Accountancy, December 2010: Panel poised to recommend separate board, U.S. GAAP exceptions for private companies
- MACPA: AICPA Council support private company standards
- CFO Magazine: The big risks of little GAAP, from Bruce Pounder at CFO.com
- Financial Executives International: Blue ribbon panel on private cos. prefers new standard setting model and separate board
- CPA Success blog post: What's keeping CPAs up at night? and posts in the category Accounting and Auditing