Blue-Ribbon Panel May Lead U.S. to Different Accounting Standards for Private Companies

February 4, 2010

The AICPA and the Financial Accounting Foundation (FAF), with support from the National Association of State Boards of Accountancy, have formed a blue-ribbon panel to explore the future of standard setting for private companies, including whether separate, standalone accounting standards for private companies are needed. The FAF is the parent organization of the Financial Accounting Standards Board (FASB). The panel is expected to make recommendations this fall.

Most of the recent discussions concerning financial reporting standards have centered on International Financial Reporting Standards (IFRS), specifically on whether the Securities and Exchange Commission (SEC) will endorse the proposed roadmap released under the previous administration that could lead to all U.S. public companies being required to use IFRS on a phased-in basis beginning as early as 2014. Yet even if the SEC eventually mandates the use of IFRS to replace U.S. generally accepted accounting principles (GAAP), the requirement would apply only to the approximately 15,000 public companies in the United States.

But what about the 29 million private companies that will continue using U.S. GAAP?

“We need to take a fresh look at how U.S. accounting standards can best meet the needs of private company financial statement users, and that’s what this blue-ribbon panel will do,” says Jeannine Birmingham, president of the Alabama State Society of CPAs. “I expect the panel's recommendations to be an extremely positive development for our state’s many private companies and the CPA firms who serve them.”

In early January, Rick Anderson, CEO of Moss Adams LLP, was named chairman of the panel. Anderson currently serves on the FAF Board of Trustees, was a member of the AICPA governing Council for three years and is the immediate past chair of the AICPA Major Firms Group. The panel’s other members will represent a cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors. 

According to the U.S. Small Business Administration, small businesses employ more than half of all private sector workers and are responsible for 44% of the private payroll in the United States. They also have produced 64% of the new jobs created during the past 15 years.  Many of these companies are small and medium-sized organizations that report to a narrow range of financial statement users, such as lenders, venture capitalists and insurers.

“Small business has also been instrumental in creating new innovations and are an important element in our economic recovery,” says Robert R. Harris, CPA/CFF, chairman of the AICPA Board of Directors. “We need a financial reporting system that provides financial statement users and small business owners with information they can truly use and understand.  We CPAs know full well that the financial reporting needs of our private company clients or employers and their financial statement users are different from those of public companies. It’s time for accounting standards to reflect this difference, where appropriate.”

In recent months there have been many calls within the accounting profession for a new and comprehensive evaluation of private company accounting. Included in those calls was the voice of the Private Company Financial Reporting Committee (PCFRC), a joint initiative of the AICPA and the FASB. For the past several years, the PCFRC has been monitoring standard setting and speaking out on behalf of the needs of private companies and the CPAs who serve them.

“The goal is to bring valuable information to the users of private company financial statements without burdening those companies and their CPAs with requirements that have no relevance to their investors, lenders and other financial statement users,” says Harris. “By doing this, we should also be able to help control financial reporting costs, something I know our members in business and industry will appreciate.”

 “The time has come to address accounting standards for the majority of America’s businesses at the policy level and the recently created blue-ribbon panel will do just that,” said Jeannine Birmingham, ASCPA President.