Will the creation of a separate board and a differential framework ultimately steer the 30-plus-year debate over the creation of private company reporting standards toward a resolution?

The Blue Ribbon Panel on Standard-Setting for Private Companies, the 18-member group organized in 2009 by the American Institute of CPAs, the Financial Accounting Foundation and the National Association of State Boards of Accountancy, recently issued its long-awaited recommendations on private company standards, including establishing a new board to oversee and determine private standards, as well as creating a differential framework - a set of decision criteria - to facilitate a standard-setter's ability to make appropriate, justifiable exceptions and modifications.

"I think the recommendations clearly expressed the opinions of the members of the panel, including those who presented alternative views," said Judy O'Dell, principal of O'Dell Valuation Consulting and, since 2006, chair of the Private Company Financial Reporting Committee established by the AICPA and the Financial Accounting Standards Board. "I know from the numerous presentations I have made around the country over the last four years that there is a deep-seated belief that FASB cannot get it right for private companies. This belief was also expressed by the members of the Blue Ribbon Panel. The panel believed this was a structural issue, and that is what I believe drove the recommendation for a separate board."

The panel did not, however, advocate creating a separate and self-contained GAAP for private entities.

However, with the International Accounting Standards Board expected to shoulder much of the responsibility for standard-setting for publicly traded companies in the next few years should the Securities and Exchange Commission decide to incorporate International Financial Reporting Standards into U.S. GAAP, the role of FASB could narrow significantly if it yielded its authority over standards for privately held companies as well.

"I can see the merits of a board to represent the interests of private companies," said Bob VanArnum, a partner in the Technical Resources Department of New Jersey-based WithumSmith+Brown. "It would seem a little costly for something like that just to make exceptions and modifications, but it would have much more of a role, pending the outcome of IFRS. Then what happens to FASB? There are so many moving parts to this equation, it's tough see where it may shake out. "

"I think it's a very strong and substantive recommendation," said AICPA president and chief executive Barry Melancon. "This issue has been debated for 30-plus years. This is a very diverse panel and they made an overwhelming recommendation here to create a new board."



The Financial Accounting Foundation - overseer of FASB and its governmental sibling, the Governmental Accounting Standards board - said that it would mull over the panel's recommendations.

FAF chief executive officer Teresa Polley said that the report's recommendations would be paired with constituent input to reach any conclusion.

Meanwhile, NASBA chair Billy Atkinson came out against the creation of a separate board. "As this is a significant public policy issue that is not unique to private companies, we believe the best approach for needed change is through the existing FAF-governed FASB, which should be more strategically aligned to continuously address these concerns," he said. "In our view, a separate accounting standard-setting body for private companies would lead to differential standards and result in other unintended consequences. We urge the FAF to carefully consider the potential effect on the financial reporting system."

FASB, which has been overseeing accounting standards for public and private companies, has increased its recent efforts of late to do more outreach and meetings with private companies. In January, FASB added Daryl Buck, a senior vice president and chief financial officer at Reasor's Holding Co., to its now seven-member board.

Also in January, FASB chair Leslie Seidman said in a webcast that the standard-setter would consider private company issues in all of its projects.

However, Melancon does not believe that would be enough to sway the FAF from its proposal to create a separate board. "The panel was aware of all of those steps," he said. "They said good, but insufficient. I think a lot of these steps started to take place once the panel was in place. There's urgency to get this done. It should not be a reason why the FAF can't implement these recommendations."

He anticipates that the FAF's decision on whether to set up a separate board could happen as soon as this summer. At press time, a meeting on the panel recommendations was scheduled for February.

Following the release of the panel report, the Texas Society of CPAs' executive board became the first state society to adopt a resolution in support of the implementation.

"Anything the new board does would be subject to public deliberation," said Melancon. "We're not looking to any new standards that could reasonably take place this year, but we could start to see some of those in 2012."

"It has a lot of momentum going for it," said WS+B's VanArnum. "It has the support of the AICPA and a lot of firms, including ours. And I think everyone is getting a little tired of FASB."

Said O'Dell, "We'll just have to see what they decide. In any case, the FAF will be seeking input from constituents and I'd urge everyone working with private companies to pay attention and weigh in with their comments."

In the meantime, those looking for an alternative set of standards do have an option: Nearly two years ago, the IASB released IFRS for SMEs, which is geared toward small and medium-sized entities - private companies, in other words. Since the IASB has been voted as a recognized standard-setter by the AICPA, it allows members to use IFRS for SMEs if it is determined that they best suit the objectives of their statement users.

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