Two reports from the Maryland Association of CPAs and Grant Thornton paint different pictures of whether accountants favor a separate standard-setting board for private company accounting.

The Maryland Association of CPAs has issued a report, led by a Grant Thornton managing partner, calling for the establishment of a separate standard-setting board for private companies. However, a separate survey from Grant Thornton of private company CFOs says they still favor the Financial Accounting Standards Board as the standard-setter for private company accounting. FASB's parent organization, the Financial Accounting Foundation, is weighing the possibility of establishing a separate stanard-setting board for private companies after receiving recommendations for such a board in a report from a Blue Ribbon Panel earlier this year.

MACPA set up a task force to study the issue, and they issued a report last Friday saying the time is right to establish a separate private company accounting standards board that will develop exceptions and modifications to GAAP for private companies.

The paper, “Private Company Standards: Responding to the Reporting Needs of Private Companies and the Users of Their Financial Statements,” was produced by the MACPA's Accounting Standards Task Force and released as part of the association's annual Maryland CPA Summit in Baltimore last week.

“We have studied this issue for more than 30 years, and the small business community needs relief from onerous financial standards,” said Arthur E. Flach, CPA, managing partner of Grant Thornton LLP’s Baltimore office and chairman of MACPA’s Accounting Standards Task Force. “We urge the Financial Accounting Foundation to move forward with its Blue Ribbon Panel report and get started on separate private company standards.”

Created in October 2010 to respond to recommendations from the Financial Accounting Foundation's Blue Ribbon Panel on Standard Setting for Private Companies, the MACPA task force developed a series of recommendations for how standard setters can best meet the unique needs of private companies.

Specifically, the task force found that the current structure does not properly address private company standards and needs to be improved. A separate board for private companies is warranted. The principle of “distinct but linked” with a parallel and joint process to avoid unnecessary divergence was viewed as critical to the process. A majority of the task force wanted the new board to have ultimate authority over private company standards decisions. Two task force members dissented; they stated that a separate board is needed but were concerned about excessive standards divergence, and felt separate private company standards board recommendations should be subject to the final approval of FASB.

The report also recommended that a “sunset” provision of five years would be appropriate, with the understanding that the five-year term begins with the formation of the new board.

In contrast, a national survey of 318 private company CFOs in the U.S. by Grant Thornton found that a 59 percent majority prefer FASB as their accounting standard setter. The rest of the CFOs were split between adoption of IFRS for SMEs (22 percent) and a separate standard-setter for private companies (18 percent). The responses from CFOs at public companies were similar.

“The preference for the FASB as a standard setter was very pronounced, but it was not an overall rejection of separate GAAP for private companies,” said John Hepp, a partner in Grant Thornton LLP’s Accounting Principles Group. “A majority of respondents (51 percent) favors permitting IFRS for SMEs as an option, even though only 22 percent favor adoption of IFRS for SMEs.”

CFOs at pubic companies also preferred the FASB as a standard setter over the International Accounting Standards Board by similar margins.

The Blue Ribbon Panel report on private company accounting issued in January of 2011 recommended that the Financial Accounting Foundation “create a separate accounting standards board . . . with the ultimate standard-setting authority to determine and set exceptions and modifications in [generally accepted accounting principles] for private companies.” The Blue Ribbon Panel specifically rejected adoption of IFRS for SMEs, the international accounting standards for private entities issued in July of 2009.

These results and additional findings on differences between how CFOs at private and public companies perceive the objective of financial reporting and the users of financial statements are discussed further in the recently released Grant Thornton white paper, “Who should set financial reporting standards for private companies?

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