Possible Relief for Private Company Financial Reporting?
By Jeff Skaggs, Audit Principal
The Financial Accounting Foundation (FAF) has established a new body titled the Private Company Council (PCC). The PCC’s purpose is to improve the process of setting accounting standards for private companies. It will work closely with the Financial Accounting Standards Board (FASB) to carry out its two primary responsibilities of determining whether exceptions or modifications to existing US GAAP are needed and to advise the FASB on the appropriate treatment for private companies of future items it considers.
The PCC will have 9 to 12 members comprised of a variety of individuals with substantial experience working with private companies. The Chair of the PCC will not be a FASB member. The PCC recommendations will need to be endorsed by the FASB, distributed for public comment and redeliberated after the close of the public comment period before FASB will make a final decision on endorsement. If the FASB endorses the proposal, it will become incorporated into US GAAP. If the FASB does not endorse the proposal, it will provide a written explanation to the PCC including possible changes for the PCC to consider that could result in FASB endorsement.
In a related development, The AICPA has announced plans to develop an “other comprehensive basis of accounting” (OCBOA) financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises (SMEs), as well as the users of the financial statements of these entities. The goal of the SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to US GAAP for SMEs that do not need US GAAP financial statements.
Gregory J. Anton, chairman of the board of directors of the AICPA has said “One-size US GAAP does not fit all companies, especially smaller privately held businesses. We recognize that the FAF has moved in the right direction and the AICPA will continue to be fully engaged with the FAF and the Private Company Council. While doing so, we will also use our resources and expertise to develop an enhanced OCBOA financial reporting framework that is objective, relevant and responsive to the concerns of preparers and users of small and medium private company financial statements where GAAP financial statements are not required.”
Terri Polley, FAF President and CEO responded saying “We welcome the AICPA’s support for the Private Company Council and for our efforts to improve the standard-setting process for private companies. We also believe that the AICPA’s plan to develop a financial reporting framework for smaller private entities, which would be used as a form of OCBOA reporting where appropriate, is an important and complementary undertaking. Taken together, these actions demonstrate the commitment of both organizations to the private company financial reporting constituency.”
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