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 on its Invitation to Comment by Oct. 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. The FAF decided to set up the PCC in May in response to a Blue-Ribbon Panel Report on Standard Setting for Private Companies that recommended the FAF establish a separate standard-setter for privately held companies (see FAF Details New Private Company Council in Final Report). Before the decision to create the PCC, FASB had been in the process of setting up a differential framework for private company standards. Several organizations, including the American Institute of CPAs and a number of state CPA societies, had pushed the FAF to make the council completely independent of FASB, but the FAF settled on a compromise approach in voting to create the PCC.

Working with FASB, and guided by the framework, the PCC will determine whether exceptions or modifications to existing nongovernmental U.S. GAAP are necessary to address the needs of users of private company financial statements. The PCC then will identify, deliberate and vote on any proposed changes, which will be subject to endorsement by the FASB and submitted for public comment before being incorporated into GAAP.

The recommendations contained in the Invitation to Comment reflect what stakeholders told the FASB staff about their experiences using, preparing, auditing, reviewing, and compiling private company financial statements. Individuals and organizations are asked to provide comments on six significant factors the staff identified that differentiate the financial reporting considerations of private companies, specifically: types and number of financial statement users, access to management, investment strategies, ownership and capital structures, accounting resources, and learning about new financial reporting guidance.

The Invitation to Comment also seeks stakeholder feedback on five areas where financial accounting and reporting guidance might differ for private and public companies: recognition and measurement, disclosures, display (presentation), effective dates and transition methods.

“The development of a sound decision-making framework is essential to our ongoing efforts to address the unique needs of private company stakeholders while maintaining the high quality of U.S. GAAP,” said FASB chair Leslie F. Seidman in a statement. “We anticipate that the guidance designed to identify cost-effective alternatives for private companies also will benefit some of the FASB’s public and not-for-profit standard-setting activities.”

FASB has chosen not to deliberate the topics in the Invitation to Comment 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, along with a FASB in Focus explanation.

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