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FASB/AICPA Invite Comments on Private Company Standard-Setting
June 8, 2006
FEI Summary
On June 8, 2006, the Financial Accounting Standard Board (FASB) and the American Institute of Certified Public Accountants (AICPA) released a joint proposal/Invitation to Comment (ITC) which recommends certain changes to FASB’s standard-setting process with respect to private companies, and announces the formation of a Special Committee to advise the FASB on these matters.
The joint proposal, “Enhancing the Financial Accounting and Reporting Standard-Setting Process for Private Companies,” states, “In assessing the need for differences for private companies in recognition, measurement, disclosure, and presentation, the FASB will consider the needs of users of financial statements as well as cost-benefit considerations.” However, the proposal also states, “the objective of the change is not to create a separate, new set of GAAP requirements for private companies.” The comment deadline on the proposal is August 15, 2006.
The proposal notes two major initiatives:
n FASB standard-setting process: Proposed changes to FASB’s standard–setting process include:
o FASB staff will seek input specifically from those involved in financial reporting for private companies, including users, preparers and auditors.
o During the standard-setting process, FASB staff will provide members of the FASB board with alternatives for private companies. These alternatives will be based on differences in user needs and cost-benefit considerations.
o FASB will articulate within the basis for conclusions section of standard-setting documents (both Exposure Drafts and final Statements) the basis for its decisions on whether differences should exist for recognition, measurement, disclosure, transition or effective date for private companies.
o FASB will explicitly request that constituents provide information on the standard’s impact on private companies.
o Following the FASB’s receipt of comment letters, FASB will analyze and evaluate whether differences are warranted for private companies.
o Additionally, FASB and AICPA are actively recruiting staff to assist with the initiatives described in this proposal.
n Special Committee. The proposal notes that FASB and AICPA have agreed to jointly form and fund a Special Committee to serve as an additional resource to FASB “to ensure that the views of private company constituents are incorporated into the standard-setting process.”
o FASB and AICPA would appoint the 11 members of the committee (noncompensated), and a part-time compensated chair.
o Nominations are to be sent to Dan Noll at AICPA.
o The committee will meet 4-6 times per year and:
§ will liaise with interested constituent groups to obtain a broad base of views on private company financial reporting;
§ may conduct formal, broadbased research to achieve its objectives; and
§ may enlist the help of others, for example, by forming resource groups
o The Director of Accounting Standards of AICPA and Director of Technical Application and Implementation Activities at FASB will be responsible for ensuring that the Committee has adequate staffing resources to successfully achieve its objectives.
o Public documents relating to the committee will be posted at www.pcfr.org.
o The proposal asks if constituents agree that members of the committee should not be compensated (other than the chair) and that the committee should set its own agenda (independent of FASB and AICPA).
Further information on the proposal is available at:
n AICPA-FASB joint press release; and
n Joint website established by FASB and AICPA: www.privatecompanyfinancialreporting.org (also known as www.pcfr.org ).
Comments on the proposal are due by August 15, 2006.
Additional Initiatives and Resources for Private Companies
IASB Addressing Private Company Reporting in SME Project
The International Accounting Standards Board (IASB) is also addressing private company reporting in its Small and Medium Enterprises (SME) project. According to the SME page on IASB’s website, IASB anticipates issuing an Exposure Draft for public comment in 2006, and to publish final standards for SMEs in 2007. IASB has also formed a Working Group on this project.
Links to related documents include:
“Accounting Standards for Small and Medium Entities” - IASB SME Project Update – January, 2006
“Staff questionnaire on possible modifications of the recognition and measurement principles in International Financial Reporting Standards (IFRS) for use in IASB standards for small and medium-sized entities (SMEs)” (published April, 2005)
n Comment letters
“Discussion Paper: Preliminary Views on Accounting Standards for Small and Medium Sized Entities” (published June, 2004)
n Comment letters
“What Do Users of Private Company Financial Statements Want?” -FERF Research Published May, 2006
Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), recently published, “What Do Users of Private Company Financial Statements Want?”
The report, available here, summarizes a series of interviews with preparers of financial statements and commercial and investment bankers that sought to answer the question, what do users of private company financial statements want? The publication was prepared in consultation with FEI’s Committee on Private Companies for FEI members, and was sponsored by the National Federation of Independent Business (NFIB) Research Foundation.
FEI Committee on Private Companies
Half of FEI’s 15,000 members belong to private companies, as noted on this member demographics page, FEI’s Committee on Private Companies (CPC) was created in 1997 to help serve the needs of private company members. Further information on CPC is available from Serena Dávila (sdávila@FinancialExecutives.org), Director of Technical Activities, in FEI’s Washington, D.C. office. Additional resources for private companies are available here.
Prepared June 9, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.
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