Many of us on the Blue Ribbon Panel on Standard-Setting for Private Companies believed we were on the verge of an historic change that would have relieved millions of private companies of accounting standards geared more to the needs of public companies and their financial statement users. That's why there is so much disappointment over the fact that the recent proposal by the Financial Accounting Foundation rejected the cornerstone of the panel's recommendations - to create a new standard-setting board that would have the authority to establish modifications in Generally Accepted Accounting Principles that reflect differences for private companies.

The panel, formed by the American Institute of CPAs, the FAF and the National Association of State Boards of Accountancy, had 18 members who represented a top-level cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors. It proposed a new private company standard-setting board that would report to the FAF, just like the Financial Accounting and Governmental Accounting Standards Boards currently do.

A solution like this has been a long time coming. For many decades, CPAs who work for private companies in the U.S. have recognized that the financial information needs of private businesses and their financial statement users are very different from those of large public entities. Historically, the problem has often been referred to as "standards overload," and has been of particular concern to small and midsized private businesses, since they are least able to bear the substantial costs of complying with increasingly complex U.S. GAAP.

As far back as 1980, the AICPA's committee on small and medium-sized firms found that roughly 90 percent of all CPAs agreed there was an accounting standards overload problem, with most believing it was particularly burdensome for non-public companies.

Even back then, many professional standards were designed for the public securities market and were irrelevant, or at least not cost effective, for smaller private companies that did not rely extensively on outside unsecured credit. This sentiment has been repeated often over the years by a variety of independent experts and committees, until finally the accounting profession seemed to be on the verge of an historic breakthrough, with the panel's recommendations.

Two examples of existing standards that are not appropriate or relevant for private companies are those formerly known as FIN 48, on accounting for uncertainty in income taxes, and FIN 46R, related to consolidation of variable interest entities. In addition, FASB's push to incorporate more fair value measurement in financial reporting is simply not as relevant to the users of private company statements, who can generally access whatever additional information they need from the company they are evaluating, versus public companies who must make all information public at the same time for every user.

These examples highlight how the needs of private company financial reporting users differ substantially from the needs of their public company counterparts. In fact, the needs of those two groups of financial reporting users will continue to diverge more and more.

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