The American Institute of CPAs has agreed to lend its support to the new Private Company Council established by the Financial Accounting Foundation after opposing an earlier version proposed by the FAF last year.
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The Private Company Council will determine whether exceptions or modifications to U.S. GAAP for privately held companies are necessary (see New Private Company Standards Council Established).
The new council will replace the Private Company Financial Reporting Committee and will have the ability to identify, deliberate, and vote on any proposed changes, which will be subject to endorsement by the Financial Accounting Standards Board, which the FAF oversees, and be submitted for public comment before being incorporated into GAAP. The PCC will also serve as the primary advisory body to FASB on the appropriate treatment for private companies for items under active consideration on the FASB‟s technical agenda.
When the FAF issued its original proposal for the council last year, the AICPA organized a letter-writing campaign and generated thousands of comments from CPAs and CPA societies pressing for more independence from FASB (see AICPA Renews Campaign for Private Accounting Standards Board). However, the AICPA said Wednesday that it supports the revised form of the council.
“With the news announced today by the FAF, we recognize and appreciate that the FAF has taken solid steps in the right direction regarding the Private Company Council,” said AICPA president and CEO Barry Melancon in a statement. “The AICPA is encouraged by this approach and awaits more of the details of the FAF decision. We look forward to continuing to work together to effect meaningful changes in U.S. GAAP for private companies and the users of their financial statements."
The action the FAF has taken to date stems in large measure from the foundational work conducted by a blue ribbon panel formed in 2009 by the AICPA, the FAF and the National Association of State Boards of Accountancy, which included lenders, investors and owners as well as preparers, auditors and regulators, the AICPA noted. After receiving the panel’s report in January 2011, the FAF gathered input from stakeholders, and released a proposal last fall. The vast majority of stakeholders agreed with the panel that action must be taken to make private company financial statements more relevant, less complex, and cost-beneficial.
On Wednesday, tthe AICPA also announced plans to develop an “other comprehensive basis of accounting” (OCBOA) financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises (SMEs), as well as the users of the financial statements of these entities. The SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to U.S. GAAP for SMEs that do not need U.S. GAAP financial statements.
“In addition to advocating for appropriate differences in U.S. GAAP to recognize the unique circumstances of the private company environment, we will be launching a complementary OCBOA financial reporting framework. The enhanced and simplified financial reporting framework will be a cost beneficial solution for smaller privately held entities that do not need to comply with U.S. GAAP,” said Melancon.
“One-size U.S. GAAP does not fit all companies, especially smaller privately held businesses,” said AICPA chairman Gregory J. Anton. “We recognize that the FAF has moved in the right direction and the AICPA will continue to be fully engaged with the FAF and the Private Company Council. While doing so, we will also use our resources and expertise to develop an enhanced OCBOA financial reporting framework that is objective, relevant and responsive to the concerns of preparers and users of small and medium private company financial statements where GAAP financial statements are not required.”
FAF president and CEO Terri Polley said she welcomed the AICPA’s support. "I'm very pleased with the AICPA's reaction," she told Accounting Today (see FAF CEO Terri Polley Explains How New Private Company Council Will Function). "We have had an ongoing dialogue with Barry and the leadership of the AICPA."
In the AICPA's announcement, Polley also said she supported the Institute's plans for the OCBOA framework. “We also believe that the AICPA’s plan to develop a financial reporting framework for smaller private entities, which would be used as a form of OCBOA reporting where appropriate, is an important and complementary undertaking,” she said in a statement. “Taken together, these actions demonstrate the commitment of both organizations to the private company financial reporting constituency.”