Highlights of Recommendations Made By Blue Ribbon Panel On Private Cos.
Jan. 26, 2011
FEI Summary

Following are some highlights from the report of the Blue Ribbon Panel on Standard-Setting for Private Companies. The BRP report on private companies was issued to the Financial Accounting Foundation on Jan. 26, 2011 and publicly posted on the FAF’s website. There are some, but not all of the detailed points included in the panel’s recommendations; taken verbatim from the report, bulleted for emphasis.

Model:

·  The BRP recommends that accounting standards for private companies be based on existing U.S. GAAP ...but with exceptions and modifications that would result in financial statements that provide relevant, decision-useful information that meets the needs of users of private company financial statements in a cost-effective manner...

·  This could result in different measurement, disclosure, presentation, and recognition standards for private companies, but the modifications and exceptions would have to be justified using a differential framework (set of decision criteria) and not created just for the sake of having differences...

·  The BRP envisions the framework functioning as a guide to evaluate whether differences would be appropriate, rather than as an entirely new foundation from which to develop a separate body of GAAP for private companies.

·  The BRP considers this framework, and the willingness to interpret the framework to create differences, to be essential to the successful implementation of this model

·  A cost-benefit analysis would be performed to take into account the costs to prepare, report on, and use the financial statements. The benefit side of the equation would consider whether or not users would be able to make appropriate decisions with the information provided and whether those users have access to management to obtain additional information.

Standard-Setting Structure:

·  To complement the model, a supermajority of BRP members recommend that the FAF create a separate accounting standards board (hereinafter referred to as “new board”) with the ultimate standard-setting authority to determine and set exceptions and modifications in GAAP for private companies... while helping to ensure that users of private company financial reports receive decision-useful information.

·  The new board would monitor the activities and deliberations of the FASB and work alongside the FASB as necessary to ensure that differences in GAAP for private companies, where warranted, are promulgated efficiently and effectively.

·  The BRP believes the FASB, working with the new board, should try to develop the best possible standards for all entities.

·  The differential framework, as discussed above, will help in determining whether differences in GAAP for private companies are warranted....

·  If a topic is on the FASB’s agenda, the FASB might promulgate a difference (with the support of the new board) or the new board might promulgate a difference if the FASB believes such a difference is unwarranted.

·  Regardless of how the boards choose to operationalize the promulgation of differences on a facts-and-circumstances basis, the Panel believes that the ultimate authority to approve the exceptions and modifications should reside with the new board. The new board could also initiate its own projects as deemed necessary.

·  The new board would consist of members that are representative of the private company sector and would work closely with the FASB. The new board would have the responsibility to conduct outreach to private company stakeholders and provide input and feedback to the FASB. Nothing would preclude the FASB from receiving input from private companies, but the specific responsibility for seeking such input would reside with the new board.

·  The FASB and new board would each have official observers at their respective meetings to maintain effective two-way communication. (The FAF could further solidify this coordination by having the primary advisory board to the new board also advise the FASB on private company matters.)

·  Much of the cost for the new board and staff would likely require funding by a viable, new source, such as mandatory annual or one-time (endowment) contributions from stakeholders.

Prepared Jan. 26, 2011 by FEI staff.  This summary does not represent FEI opinion unless specifically stated above.