FASB Previews Framework for Deciding on Accounting Standards Changes for Private Companies

The Financial Accounting Standards Board and the Private Company Council have released an invitation to comment on their proposed decision-making framework for determining when exceptions to accounting standards should be made for privately held companies.

The Invitation to Comment: Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies seeks feedback from stakeholders on the proposed private company decision-making framework. The framework is supposed to serve as a guide for FASB and the recently established PCC in determining whether and under what circumstances to provide alternative recognition, measurement, disclosure, display, effective date or transition guidance for private companies reporting under U.S. GAAP.  FASB and the PCC developed the proposed provisions contained in the Invitation to Comment based on their discussions at the PCC’s February 2013 meeting (see Private Company Council Sets Agenda).

During that meeting, FASB and the PCC weighed the feedback they had received on the Invitation to Comment document that FASB issued last July. The document contained the initial recommendations from the FASB staff about the creation of a private company decision-making framework. As a result of their February discussions, FASB and the PCC made changes to the original proposal, including removing the industry-specific presumption by having FASB and the PCC consider whether the same industry-specific guidance is relevant to users of the financial statements of both public companies and private companies.

They also decided to allow a private company to select the alternatives within U.S. GAAP for recognition or measurement guidance that it deems appropriate, without needing to apply all the alternatives within U.S. GAAP for recognition and measurement.

“Many private companies issue financial statements in accordance with U.S. GAAP for the benefit of their investors and lenders,” said FASB chair Leslie F. Seidman in a statement. “This proposed guide is intended to help the FASB and the PCC identify the unique needs of users of private company statements, while also reducing the complexity and cost of preparing those statements. Stakeholders have already provided valuable input in the development of the guide, and we look forward to receiving additional feedback about its appropriateness, completeness, and cost effectiveness.”

To help identify more opportunities to improve the guide, FASB and the PCC are asking to provide input on the Invitation to Comment by June 21, 2013. After the comment period, FASB and the PCC will re-deliberate and are likely to further revise the guide.

The Invitation to Comment is available at www.fasb.org. A FASB in Focus document explaining the proposals also is available on FASB's Web site.  The PCC was established by the Financial Accounting Foundation’s board of trustees to work with FASB to determine whether and when to modify U.S. GAAP for private companies.