With proposals, counter-proposals, resolutions and thousands of comment letters circulating over separate standards for private companies, the often-polarizing 30-plus-year debate appears to be finally nearing a decision in 2012.
October's proposal by the Financial Accounting Foundation, calling for the creation of a Private Company Standards Improvement Council that would remain under the purview of the Financial Accounting Standards Board, has drawn over 6,500 comment letters.
Upon its release, the FAF proposal came under heavy criticism from many in the profession - particularly the American Institute of CPAs. Having a board whose recommendations were subject to ratification by FASB was a measure that many in the profession viewed as merely the status quo.
At its Fall Meeting of Council, the institute raised eyebrows when it overwhelmingly passed a resolution giving its board the option to create a separate body to develop standards for private companies. "We do not want to set standards," maintained institute president and CEO Barry Melancon. "We hope in their final deliberations over the next month or two to see a system that we can support."
Some critics suggested that the proposed PCSIC was just a recycled, larger version of the Private Company Financial Reporting Committee, which was formed in 2007.
In an interview, FASB chair Leslie Seidman explained that the PCSIC would have several advantages over the PCFRC, including staff resources from FASB and a greater level of interaction with the board. FASB board members would also participate in the PCSIC meetings in order to have an ongoing dialogue, she added.
Regardless of the feedback, Ken Bishop, CEO of the National Association of State Boards of Accountancy, expects that there will finally be some movement this year. "Not only is it realistic, but I believe it's likely," said Bishop, whose organization supported the creation of the PCSIC.
The FAF is expected to issue a decision on the structure of the new council after a last roundtable meeting on March 1 - most likely in the second quarter of the year. The comment period ended in mid-January.
Seidman said that FASB has assigned staff to analyze the comment letters received thus far. "One thing that I have learned reading the letters is that some people are not aware of some of the things that we are already doing, so at a minimum we have an opportunity to communicate more broadly about those efforts. But the other things that we have been working on in the meantime, irrespective of any structural change that may take place, have to do with the development of a framework for deciding when there are unique private company issues that would warrant a different accounting or disclosure approach."
Seidman added that FASB is also working on an appropriate definition of a private company, noting that there are six different definitions for private companies in the FASB Accounting Standards Codification, "because every time the board approached the issue it had a different objective in mind."
MORE WORK TO BE DONE
Ernie Baugh, national director of professional standards at Mayer Hoffmann McCann and author of one of the many comment letters to the FAF, agreed that there likely would be both a lot of activity and more detailed proposals out of the FAF and FASB this year.
"The point we tried to make [in the comment letter] primarily is there needs to be a determination of the types of differences that will be acceptable to private company GAAP as opposed to standard GAAP."
"I believe that a new, separate standard-setting body should be established directly under the FAF and not subject to FASB approval," added Jim Keeslar, director of assurance services at BCG & Co. "Past history clearly demonstrates that FASB cannot effectively set standards that meet the needs of users for both public and private companies."
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