The Financial Accounting Standards Board has begun developing a “differential framework” that would help provide a short-term solution for creating distinct standards or exceptions for private companies.
The “differential framework” is intended to offer a stopgap fix while FASB’s parent organization, the Financial Accounting Foundation, studies the recommendations in a Blue-Ribbon Panel report that came out earlier this year suggesting the foundation set up a separate standards board to handle private company accounting. The same report also recommended that until such a separate board is set up, FASB should develop a differential framework for private company accounting standards.
As part of that effort, FASB released a “FASB in Focus” document Monday in which it discusses the path to a differential standard-setting framework.
The document noted that as part of an initial assessment, the FASB staff has identified six significant factors that differentiate the financial reporting considerations of private companies from public companies: types of users, access to management, investment strategies, ownership structures, accounting resources, and education.
The staff assessment is the first stage in FASB’s effort to develop the “differential framework,” which would help the board decide whether and when to adjust the requirements for recognition, measurement, presentation, disclosure, effective dates, and transition methods for financial accounting standards that apply to private companies.
“This work is an important step forward in the FASB’s effort to develop a set of criteria for evaluating when accounting or disclosure standards should be different for private companies,” said FASB Chairman Leslie F. Seidman in the document. “This process demonstrates our commitment to better serving the needs of all private company stakeholders—both users and preparers of private company financial statements—without sacrificing the quality and fundamental level of comparability that are the touchstones of the U.S. accounting system.”
FASB is hoping to preserve its control over private company standard-setting in addition to its role as the accounting standard-setter for publicly traded companies. Over the past year, the board has been extending its outreach to private company constituents and added a board member from the private company world.
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