The American Institute of CPAs passed a resolution Tuesday at its Fall Meeting of Council that would give its board of directors the ability to consider the option of creating a separate committee or board to develop accounting standards for private companies.
The resolution came in response to a recent proposal from the Financial Accounting Foundation to create a Private Company Standards Improvement Council instead of a separate standards board for private company accounting (see AICPA Renews Campaign for Private Accounting Standards Board). The AICPA has been pushing for the creation of a separate standards board that would not be beholden to the Financial Accounting Standards Board. A report from a Blue Ribbon Panel on Standard-Setting for Private Companies recommended the creation of such a board.
If the FAF continues to pursue its current proposal to set up the private company council, the AICPA said its board of directors would look at other solutions for addressing the needs of private companies. This could include creating a separate standard-setting body to develop private company GAAP or a comprehensive private company-specific basis of accounting that would deliver “meaningful, lasting improvement to private company financial reporting consistent with the Blue Ribbon Panel’s recommendations.”
In the resolution, the AICPA instructed its board of directors to submit to the FAF, which oversees FASB, a comment letter setting forth its disagreement with the FAF’s proposal and restating the AICPA’s support for the recommendations of the Blue Ribbon Panel. However, it also further resolves that because the FAF proposal “does not contain the establishment of a board under the Financial Accounting Foundation empowered to set differences in U.S. GAAP standards where appropriate for privately-held companies, which is the preference of this Council, and if the Financial Accounting Foundation’s proposal is not modified to include such a board under the Financial Accounting Foundation, this Council directs the AICPA Board of Directors to consider all options, including consideration of other established independent standard-setting bodies as the standard setter for U.S. GAAP for private companies, the creation of a committee or board within the AICPA or a standard-setting body as a separate entity, to develop private company generally accepted accounting principles (PCGAAP) or a comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting consistent with the Blue Ribbon Panel recommendations.”
The council members voted overwhelmingly to approve the resolution, with a few changes, including one that would allow for recognition of IFRS for SMEs, the International Accounting Standards Board’s stripped down set of International Financial Reporting Standards for Small and Medium-sized Enterprises.
“The FASB has proven over many years that it cannot deliver meaningful improvement to private company reporting standards,” said AICPA president and CEO Barry Melancon. “FASB’s primary focus has been and should be on the public company sector and on international convergence. Fifty percent of the U.S. economy comprises private companies. This critical sector of our economy deserves a board focused solely on their specific needs."
Financial Accounting Foundation spokesman Robert Stewart responded to the AICPA resolution, contending that the FAF proposal “strikes the right balance.”
“The Trustees' proposal for a new Private Company Standards Improvement Council, which incorporates nearly all the recommendations made by the Blue Ribbon Panel, represents a significant improvement over and departure from past practice,” said Stewart. “The plan strikes the right balance by creating an independent, deliberative body that would, in effect, set the agenda for modifying accounting standards for private companies – without creating a 'two GAAP' system that would most likely result from the establishment of a second standard-setting board. The Trustees are seeking comment on the proposal through January 14, and look forward to hearing from a wide variety of users, preparers and auditors of private company financial statements. The Trustees believe this plan is in the best interests of all constituents – and in the best interests of financial reporting in the United States.”
Melancon pointed out that the AICPA has tried to work within the FAF system of submitting comments and setting up the Blue Ribbon Panel with the FAF and the National Association of State Boards of Accountancy. He insisted that the AICPA is not aiming to take over the standard-setting process.
“This resolution clearly says let’s continue to work it through the system,” he said. “We owe it to the system and the process to do everything we can to get the system to evolve in the exposure [draft] process, but the system will make a determination sometime after January 14, and [then we will] consider other options. But our first priority is to do it within the system.”
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