In a recent interview with Practical Accountant, Judith O’Dell, the recently-appointed chairwoman of the Private Company Financial Reporting Committee, explained the mandate that the committee will be following as it explores the need for different reporting standards for public and private companies in the following months.

O’Dell is president of Chestertown, Md.-based O'Dell Valuation Consulting LLC CPAs, and serves as chief financial officer for a family-owned business engaged in real-estate development and construction, as well as a hotel and restaurant operation. For five years, she served as a trustee of the Financial Accounting Foundation, which oversees both the Financial Accounting Standards Board and the Governmental Accounting Standards Board. She also chaired the Financial Accounting Foundation Audit Committee and was a member of the foundation’s Finance and Executive committees.

The reporting committee, a joint effort of FASB and the American Institute of CPAs, will hold its first meeting on May 10 and 11, in Chicago, and will be open to the public.  The committee’s Web site, www.pcfr.org, will also go live soon.

Below are excerpts of O’Dell’s comments with the magazine. To read the full interview, check out the May issue of Practical Accountant.

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Why is FASB, in conjunction with the AICPA, considering specific differences in prospective and existing accounting standards for private companies?

Both FASB and the AICPA recognize the importance of private companies to the overall vitality of our nation’s economy. Private companies create jobs and encourage entrepreneurialism, both of which are backbones of capitalism. The organizations share a commitment to the constituents of private company financial reporting, nd recognize the need to carefully evaluate whether current financial reporting standards meet the needs of users of private company financial reports.

There have been many studies done in the past as to whether financial accounting and reporting standards should be different for private companies. Until recently, those prior studies indicated that there shouldn’t be substantive differences based solely on whether a company was privately held. However, a recent study conducted by the AICPA indicates that the support of certain constituent groups for differences in accounting for private companies.

In developing financial accounting and reporting standards, its conceptual framework and its thorough and open due process guides the FASB. On a number of occasions, the FASB has provided deferred effective dates and alternative measurement provisions for private companies.  However, the FASB hasn’t consistently articulated its analysis and consideration of whether differences in recognition, measurement, disclosure, transition, and effective date should exist for private companies, nor has it consistently asked for input on whether differences in those areas should exist for private companies.

The PCFRC was formed to provide FASB with recommendations that will help it determine whether there should be differences in prospective and existing accounting standards for private companies. Recommendations put forth by the PCFRC will be based on user needs and cost-benefit considerations. The recommendations may include differences in recognition, measurement, disclosure, presentation, transition, and effective dates.

Are accounting-standard bodies outside the United States considering special standards to apply to private companies?

The International Accounting Standards Board has just issued an exposure draft of accounting and reporting principles to be followed for entities that don’t have public accountability and publish general-purpose financial statements for external users … The approach is a simplified, self-contained set of standards that are appropriate for smaller, non-listed companies but still based on full International Financial Reporting Standards, with modifications based on user needs and cost-benefit considerations.

These proposed standards remove choices for accounting treatment, eliminate topics not generally relevant to SMEs, and simplify recognition and measurement--thereby allowing the board to shrink the guidance by over 85 percent compared to full IFRSs. They also enable investors, lenders, and others to compare SMEs’ financial performance, financial condition, etc.

Also, the Canadian Accounting Standards Board is examining the needs of users of private company financial statements. Based upon the results of that examination, the Canadian ASB will determine and implement the most appropriate financial reporting model to meet those user needs.

The PCFRC will be monitoring these initiatives and working with both of these standard-setting bodies.  However, the approach we are taking in the United States differs from that of the IASB.  SME standards are meant to be a one-stop source of GAAP for those entities, whereas in the United States, any resulting differences in U.S. GAAP would be embedded within a FASB standard (and in the future, in the FASB codification).

What are the mandates of the Private Company Financial Reporting Committee?

The committee’s mission is to consider differences in prospective and existing GAAP accounting standards related to private companies based on user needs and cost/benefit considerations. Committee members individually serve as a resource to the FASB, EITF, and FASB staff during the FASB staff’s research phase before an exposure draft is developed. The committee will also make formal recommendations to FASB on prospective and existing standards. The PCFRC is free to set its own agenda and meets in public. The FASB will address the committee’s recommendations.  How are you seeking input and comments from interested parties, such as private companies, CPA firms, banks, venture capitalists, etc.? Is there a formal process?

The committee, in addition to myself, is composed of four preparers of private company financial statements, four users, and four CPA practitioners from various sized firms. All meetings are open to constituents, and there will be time set aside in each meeting for attendees to address the committee. All meeting minutes and committee agendas will be posted to the Web site (www.pcfr.org), which can be accessed directly and also through a link on FASB’s website. There will be a facility on the Web site for our constituents to leave comments. In addition, we are developing a committee resource list--a group of individuals and organizations that have indicated a willingness to assist the committee when asked.  Individuals who wish to be on the list can add their names and e-mail addresses on the Web site.

What else would you like to get across about the PCFRC?

The committee will meet in person four to six times per year. We already have four meetings scheduled through 2007, with the first one being in Chicago in May. In December, we will be meeting in Norwalk with FASB’s Small Business Advisory Committee.

The response from people volunteering for the committee was overwhelming, and I talked to many highly qualified people from around the country. Those who were not selected have agreed to be part of our committee resource list.

Once we have formulated a recommendation, a motion to forward that recommendation to FASB requires the affirmative vote of two-thirds of the members.

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