FASB PROPOSES PRIVATE CO. DECISION FRAMEWORK
Norwalk, Conn. -- The Financial Accounting Standards Board has issued a staff paper with recommendations on which criteria and circumstances should be used to determine when it is appropriate to adjust U.S. GAAP reporting requirements for private companies.
The criteria would be part of a decision-making framework to help FASB and the newly created Private Company Council identify the unique needs of users of private company financial statements, along with any opportunities to reduce the complexity and cost of preparing private company financial statements in accordance with U.S. GAAP.
The paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies, contains initial FASB staff recommendations for which criteria to follow. FASB is asking constituents to provide feedback by October 31.
Before it is implemented, the proposed decision-making framework must be agreed upon jointly by FASB and the Private Company Council. The PCC is a new body created by FASB's parent organization, the Financial Accounting Foundation, to identify issues in U.S. GAAP related to private companies and advise FASB on ongoing private company issues. Before the decision to create the PCC, FASB had been in the process of setting up a differential framework for private company standards.
The recommendations reflect what stakeholders told FASB staff about their experiences using, preparing, auditing, reviewing, and compiling private company financial statements. FASB has chosen not to deliberate the topics in the paper until stakeholders have provided input on the staff's preliminary recommendations, and the chairman and all members of the PCC have been appointed. At that time, the board and the PCC will jointly reach tentative conclusions about the criteria to be included in the framework.
The invitation to comment is available at FASB.org, along with a "FASB in Focus" explanation.
GASB RECEIVES MIXED REVIEWS
Norwalk, Conn. -- An independent study of the Governmental Accounting Standards Board commissioned by its parent, the Financial Accounting Foundation, found opinions divided on what GASB's responsibilities should include as a standard-setter for state and local government accounting.
The study found a mix of both support and opposition for active GASB involvement in areas such as performance reporting, financial projections, financial sustainability, budgeting and cost reports, and cost accounting. For each of these topics, there appears to be greater support for GASB to provide voluntary guidance, as opposed to mandatory reporting standards.
In addition, for the standard-setting process, the study found that auditors and preparers generally prefer a system that is slower, offers more opportunities for input, and reduces the cost and complexity of implementation.
The FAF trustees plan to explore the possibility of better defining the nature of GASB's authority in setting standards. They also intend to consider whether process or procedural enhancements would help clarify GASB's scope of authority.
PCAOB ADOPTS NEW STANDARD ON COMMUNICATION
Washington, D.C. -- In mid-August, the Public Company Accounting Oversight Board adopted Auditing Standard No. 16, Communications with Audit Committees, which establishes requirements that enhance the relevance and timeliness of communications between the auditor and the audit committee, in addition to amendments to other PCAOB standards.
The standard, initially proposed by the board on March 29, 2010, and re-proposed Dec. 20, 2011, in response to comment letters and a roundtable, is intended to foster constructive dialogue between the auditor and the audit committee on significant audit and financial statement matters.
"Open lines of communication between auditors and audit committees improve the quality of audits, and the final standard enhances the quality and relevance of those communications," said PCAOB Chairman James Doty.
The standard supersedes the board's interim auditing standards AU Sec. 310, Appointment of the Independent Auditor, and AU Sec. 380, Communication with Audit Committees, and amends other PCAOB standards.
"The standard on communications with audit committees will improve audit quality. It emphasizes effective two-way communication on matters of great importance to the audit and the financial statements, such as significant risks, critical accounting estimates, difficult or contentious matters, significant unusual transactions, and going concern," stated Martin F. Baumann, PCAOB chief auditor and director of professional standards.
As with all new standards and amendments adopted by the PCAOB, this new standard and related amendments have been submitted to the Securities and Exchange Commission for approval. If approved, the changes will be effective for public company audits of fiscal periods beginning after Dec. 15, 2012. Under the Jumpstart Our Business Startups Act of 2012, the standard and related amendments will apply to audits of "emerging growth companies" if the SEC makes a determination called for under the act.
The final rule and open meeting statements will be available on the PCAOB Web site under Rulemaking Docket No. 030, along with an archive of the board meeting webcast and podcast.
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