The Financial Accounting Standards Board’s Private Company Financial Reporting Committee has been active for barely a year, but it has already changed the way accounting standards are set.And 2008 may well be the group’s breakout year, according to committee chairperson Judith O’Dell.

The committee, which has administrative support from the American Institute of CPAs, was formed in response to years of complaints that accounting standards were being written by and for large public companies. The consequent reporting standards, many said, were crushing smaller private companies with accounting requirements that were unnecessary and irrelevant.

To address the lack of input by private companies, FASB and the AICPA decided in 2006 to form a committee that would provide a forum for private companies and related constituents to contribute to the standard-setting process. The first meeting was held in 2007, and the committee has been moving forward very quickly since then.

“Nothing’s off limits in terms of recognition, measurement, disclosure, or effective dates,” O’Dell said, explaining that the committee strives to provide input as early in the process as possible, ideally even before the board issues a first due process document.

Between the committee and the board is liaison Paul Glotzer, a FASB staff member with extensive small-firm/small- company experience. Though his title is “project manager,” he keeps tabs on all FASB projects and keeps the PCFRC apprised of what’s in the due process pipeline. Other project managers come to him for his thoughts on how a given issue relates to private companies.

“When project managers come into my office, I tell them how the proposed standard will impact the private-company constituency,” Glotzer said. “Then they’ll ask me to get something to back that up and I’ll send an e-mail to the committee looking for comments and suggestions.”

It was the PCFRC that inspired the recent delay in the implementation date for FASB Interpretation 48, on accounting for uncertainty in income taxes, that was granted certain private companies. Polling its resource group, a diverse group of almost 400 interested parties, the committee quickly perceived that the interpretation had left many questions unanswered. FASB subsequently understood the problem and agreed to the delay.

The committee’s resource group is open to anyone who would like to participate. Interested parties can join the group through the committee’s Web site at www.pcfr.org.

“What we’re hearing from users is that they want GAAP financial statements and audit reports that say GAAP, but they don’t necessarily care what GAAP is,” O’Dell explained. “They want the GAAP seal of approval, and they want consistency in preparation so they can run it through their software and make comparisons.”

The committee walks a fine line between helping and confusing issues, as FASB continues to converge U.S. generally accepted accounting principles with standards issued by the International Accounting Standards Board. Adjustments and accommodations requested by the PCFRC aren’t necessarily in line with what’s happening on the international front.

A key area of concern — perhaps the biggest of the next few years — is the IASB’s project to devise special reporting standards for small and midsized entities. While trying to adjust U.S standards to accommodate such entities, and trying to converge with international standards, FASB and the PCFRC will have to keep their eyes on the SME project — contributing to it as it progresses — and potentially tapping it for use in standards in the United States.

“The committee is concerned that if this country moves completely to international standards of financial reporting, that private company issues might fall by the wayside,” FASB’s Glotzer said. “The committee will therefore be looking to see if there’s something similar to an SME project they could look at here.”

The committee is looking not only at specific projects and problems, but also at an overall solution to the plight of private companies. It is also weighing the idea of separate standards for owner-managed companies, and the viability of simply freezing GAAP for private companies.

“There are a lot of voices out there,” O’Dell said, “At our April meeting we plan to spend a considerable amount of time discussing where the committee is. With all the turmoil out there, it’s going to be a very interesting year for the accounting profession. There are changes afoot.”

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