[IMGCAP(1)]The Blue Ribbon Panel on Private Company Financial Reporting has recognized that there are many issues in the way private companies and small businesses use GAAP. They don’t use it because it usually is not relevant for their financial statements.

The panel recommended the establishment of a new, standard setting board, with the oversight of the Financial Accounting Foundation, for private companies that would not be subject to approval by the Financial Standards Accounting Board. They would prepare a set of modified rules that would follow GAAP and would be part of FASB’s codification.

Is that the way to go?

The private company sector is a major part of the U.S. economy, with more than 28 million businesses, and deserves a true means of achieving relevant and cost-effective financial reporting standards.

The Financial Accounting Foundation’s proposal does not contain the establishment of a board empowered to set differences in U.S. GAAP standards where appropriate for privately held companies.

It gives authority to the Financial Accounting Standards Board (whose focus is, and should be, on the public company sector and on international convergence) over the setting of differential standards for private companies. FASB has been proven incapable of delivering meaningful improvement to private company financial reporting for many years.

To add to the difficulty, the Financial Accounting Foundation’s proposal would create a new body that would not be constituted until mid-2012, at the earliest, with members meeting at most six times per year, and with a process involving subsequent Financial Accounting Standards Board review and approval.

One could anticipate that identifying and executing needed differences in U.S. GAAP standards for private companies, would not likely occur, if at all, until 2014. 

Throughout this entire process, the Blue Ribbon Panel has never sought the input from the National Conference of CPA Practitioners, an organization only of CPAs who are primarily dealing with private companies and small businesses. As a result, the process seems to be a warmed over version of GAAP.

If the Financial Accounting Foundation’s proposal is not modified to include an independent Board under the Financial Accounting Foundation, NCCPAP should consider other options, including the creation of a committee or board as a separate entity, but with input and involvement by NCCPAP, 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 recommendations.

NCCPAP has supported and continues to support the establishment of a private company standard-setting board under the Financial Accounting Foundation, inasmuch as a board comprising individuals working in, serving, or using the financial statements of private companies can best set the differences to U.S. GAAP for private companies.

The Financial Accounting Foundation’s proposal does not encompass such a standard-setting board, but instead would create a new body that in essence is a continuation of the current Private Company Financial Reporting Committee with no power to set standards and only inconsequential modifications and a new name, which is not adequate to deliver meaningful change to private company financial reporting in a timely manner.

NCCPAP supports the recommendations of the Blue Ribbon Panel to provide relevant financial reporting standards to the private company sector, but with input and involvement by NCCPAP, 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.

Edwin J. Kliegman, CPA, is the founding partner of Marcum & Kliegman, CPAs (now Marcum LLP), founder of the Nassau/Suffolk Chapter of the National Conference of CPA Practitioners and past president of NCCPAP. He has been an active member of the New York State Society of CPAs and has chaired numerous committees. He is a consultant for small practice units that seek guidance.

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