A majority of members of the Blue Ribbon Panel on Standard Setting for Private Companies voted in favor of establishing a separate standard-setting board for private company accounting at a meeting Friday, but will wait until December to issue its final recommendations.

The draft recommendations will mostly be one of the proposed models, known as Model 2B, using GAAP with exceptions for private companies and a separate private company standards board. However, the draft will also include some details of another model, known as Model 2A, which uses GAAP with exceptions for private companies and a restructured Financial Accounting Standards Board instead of a separate board for private companies. The panel will meet again on December 10 to review the draft recommendations prepared by FASB assistant director Jeffrey Mechanick and then present its final recommendations to the Financial Accounting Foundation’s trustees, which will take them into consideration. The FAF oversees FASB and the Governmental Accounting Standards Board.

Earlier in the meeting, Leslie Seidman, who began serving as acting chair of FASB on Oct. 1, urged the panel to give FASB more of a chance and described the steps the board has been taking to include more perspective from private company constituents. FASB has been holding roundtable meetings with private company representatives, hiring extra staff dedicated to private company outreach, and expanding the board back to seven members, one of whom may be from the private company environment.

“One of the key attributes that we’re looking for in that search is practical experience in dealing with private company issues, whether from a practitioner point of view, preparer point of view, or investor point of view,” she said. “If we can get more than one of those perspectives in the same individual, that would be wonderful. I think these changes will bring the private company voice into the discussions earlier and help us do a better job with that cost-benefit assessment. It also allows us to participate in more meetings with constituents and attend conferences devoted to private company issues. We’ve already made some changes in our outreach activities.”

However, Rick Anderson, who chairs the panel, cited a recent survey by the panel that found widespread dissatisfaction with private company accounting. “The existing standards don’t give users what they need,” he said. The survey found, for example, that CPA firms with six to 20 partners believed that if private companies were subject to a limited or simplified set of standards, companies would benefit because they would be more apt to have a financial statement audit. However, other panelists noted that few private company owners responded to the survey. Most of the responses came from CPAs and other financial statement preparers.

Some panelists were concerned about the confusion that might result with FASB in the midst of converging accounting standards with the International Accounting Standards Board, and having another set of accounting standards to deal with, while questions linger over areas of disagreement like fair value measurement.

AICPA president and CEO Barry Melancon argued that the panel would be able to make more of an impact on accounting standards for private companies without having to deal with market regulations and different levels of government involvement in regulating publicly held companies that make the process of standard setting so complicated. “Just because we can’t fix it for the public companies, then some people would argue that we can't address it with the private. It's sort of 'share my pain' is the concept. I'm not sure that's a good test in that particular environment,” he said.

Judy O’Dell, who chairs the Private Company Financial Reporting Committee, a joint committee of FASB and the AICPA, described her frustrations with the standard-setting process for private companies. “When the PCFRC was formed, my understanding was that we would  be issuing not comment letters but recommendations, but those would be debated at the board level. It was very difficult to get any traction after any standard was out there.” However, she acknowledged that FASB had become more responsive and she was now seeing FASB board members sitting in on PCFRC meetings. “If four years ago, the PCFRC would have operated the way it was envisioned, maybe we wouldn’t be here now,” she said.

Anderson noted that Canada has a separate standard-setting board for private companies, and the U.S. could follow a similar model. “We’re not talking about something that’s not being done in other major economies,” he said. “We’re not talking about doing something so radical that it’s not been done before.”

The panel plans to discuss the draft report containing its recommendations at its next meeting on December 10 at the FAF offices in Norwalk, Conn. It is then expected to issue the report to the FAF Board of Trustees in January 2011 and then to the public. After deliberation, the FAF Trustees’ resulting action plan is expected to be subject to further input from constituents, including exposing the plan for public comment prior to its being implemented.

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