Separate but Equal Ã¢â‚¬â€œ AICPA Panel Recommends a Separate Board to Establish Private Company Accounting Standards
In its October 8, 2010 meeting, the AICPAs Blue Ribbon Panel on Private Company Standard Setting reported that it plans to recommend that the Financial Accounting Foundation (FAF) adopt a new standard-setting model that follows Generally Accepted Accounting Practices (GAAP) with exceptions for private companies. The Panel also recommended that these accounting standards should be set by a separate board under the watchful eye of the FAF and not FASB, the FAFs parent organization.
The impetus for the separate board arose from a desire to install a system of checks and balances to ensure that issues unique to private companies are being addressed while maintaining a reference to FASBs standards. The underlying battle over differentiated accounting standards, i.e., whether there should be alternative, simplified accounting standards that meet the needs of users of private company financial statements, has been brewing for years.
The Blue Ribbon Panel was established through the cooperation of the AICPA, the FAF and the National Association of State Boards of Accountancy (NASBA). It is comprised of 18 members representing the spectrum of financial reporting companies: auditors, regulators, investors and company owners. Most Panel members seemed to embrace the private board plan. AICPA President Barry Melancon stated:
Im pleased the majority of the panel members supported the bold step of a new, separate private accounting standards board under the FAFs oversight. An important benefit of having a new board is to help ensure the needs of the private company sector are appropriately addressed in the standard-setting process.
Yet a minority of Panel members opposes this idea. NASBA Chairman Billy Atkinson stated that a single board is necessary to ensure that all strata of businesses are represented “at the same table” when standards are being discussed and established. Atkinson commented, “The FAF and its processes for the oversight of standard setting are sound. The real challenges ahead are the important public policy issues associated with the debate.” Other Panel members feared that a separate set of standalone GAAP standards for private companies would take too long to put in place.
It is widely recognized that many private companies in the United States do not following GAAP in their financial reporting. Yet while the shortcomings of this lack of adherence to GAAP may be obvious, a recent WebCPA poll (http://www.webcpa.com/polls/?poll_id=22&page=1) found that a majority of readers did not favor a separate set of accounting standards for private companies.
Despite these differing opinions, virtually the entire Panel agreed that FASB needs more private company representation and that a recent expansion of the board from five to seven members did not go far enough to ensure that private companies are adequately represented.
The next step is for the Panels staff to develop a list of specific recommendations in anticipation of the Panels next meeting on December 10, 2010. It is believed that the Panels final recommendations will be made in a report to the FAF in January 2011. The recommendations will be made public at that time, after which the FAF is expected to solicit comments fro constituents and the public.