One of contemporary accounting's most persistent issues has taken a turn toward resolution as the American Institute of CPAs and the Financial Accounting Standards Board agreed to consider creating some kind of generally accepted accounting principles for privately held, for-profit companies.

"We've now got the support for the AICPA's governing Council behind this notion of a dedicated, focused effort on GAAP standard-setting for constituents of private-company financial reporting," said AICPA director of accounting standards Daniel Noll. "They believe that the time has come for this dedicated focus."

At its Spring meeting of Council in May, institute members overwhelmingly passed a motion supporting the development of GAAP for entities "based on concepts and accounting that are appropriate for the distinctly different needs of the constituents of private company financial reporting."

Though it's too soon to know which way the groups will go, the agreement constitutes a milestone at a major fork in the road of American accounting.

Neither the institute nor FASB would hint at what steps or directions may be taken in the future, but it's very likely that American GAAP will one day, in some way, to some extent, have a separate set of accounting standards for non-public companies.

William Balhoff, CPA, a partner with Postlethwaite & Netterville and a member of the AICPA task force that is working with FASB, is among those who have long been calling for separate principles.

The standards set by the board, he said, are written to apply to public companies, which tend to be large companies that can afford to produce complex financial statements that are used by a wide variety of interested parties, from investors to creditors to government agencies.

Citing a survey that the AICPA task force conducted last year, Balhoff said that more than half of the respondents that had an opinion stated that the underlying accounting for nonpublic companies should be different in certain instances from that of public companies. The new project with FASB, he says, is a response to that survey.

"This is incredibly important," Balhoff said. "I think it's going to have a significant effect on the way CPAs practice and how our clients are able to comply with standards. The resulting process will be based on the needs of the users and will need to be market-driven."

The accounting standards of public companies often have little relevance to nonpublic companies and the users of their financial statements. Producing those statements can become a burden that small companies have difficulty sustaining.

Noll said that the AICPA-FASB meetings would be used to determine a due process that will be used to assess the needs of private companies and the users of their financial information.

"There are other viewpoints besides [those of] the AICPA and FASB that are going to be critical in this process," Noll stated. "As a starting point, we'll kick some ideas around and then we will get the other key groups involved and see if we can come up with something. The idea is for us to start the process and then let the process work it out."

Noll said that he expected the process to involve company owners, bankers, investors and auditors. He expected decisions about participants and their organizational structure to be among the first decisions regarding the process of developing standards. A formal advisory group is one possibility; a wholly new standard-setting body is another; or the organizations may define a completely different process.

They've only just begun

Noll said that it was much too early to guess how big the overall project will be, whether it will aim to convert existing public company standards to new nonpublic company standards, amend existing standards, write dual-purpose standards in the future, develop an entirely separate set of standards, or follow some other course, possibly even rejecting the whole notion.

"You can brainstorm up the wazoo," Noll said, reflecting the openness of the initial discussions. "They're going to put all the ideas on the table and then they will figure out what makes sense. When they come down to what makes sense, they can ask what specific processes would be necessary to make it work."

FASB senior technical advisor Russell G. Golden agreed that it is too early to foresee the direction that the organizations will take, but he said that he expected to first see various constituencies provide input, then some kind of preliminary document exposed for the public to comment on.

"We haven't set a specific timetable, but we here believe this is an important thing to move forward on," Golden said.

Representatives of the organizations first met in early May to discuss broad objectives.

The International Accounting Standards Board is also working toward the possibility of some kind of separate standards for "non-publicly-accountable entities."

Neither the AICPA nor FASB would comment on to what extent the American project would converge with the IASB project.

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