As part of our Top 100 Most Influential People in Accounting report, we asked the candidates how likely they thought it would be that we will see separate accounting standards for private and public companies in the U.S. in the near future, and if they thought it likely, what form they thought it would take.
Their answers -- which range all over the map, and even into some areas we didn't expect -- are given in full below.
I do think there will be differential standards for an intermediate period of time, probably 10-15 years. This is very likely, in my opinion. There is substantial opposition among accountants (non-national firms) and small and midsized business entity executives to converged global accounting standards. "Old" U.S. GAAP will be retained for SMBE financial reporting. Only the largest multinationals will forced to use converged global accounting standards.
-- Dave Albrecht
Associate professor of accounting, Concordia College
There are a couple of changes I would look for. The first is obvious. There needs to be a standard that deals with public companies and standards that deal with private (small GAAP) companies. The importance placed on how certain accounting issues are dealt with varies too greatly between private and public companies. What's important to the SEC and the investment community is often not of interest (or even confusing) to the banking community providing loan facilities.
Secondly, with more firms beginning to offer client accounting and outsourced CFO services to clients, the profession could use another level of financial statements that indicate to the reader that the issuance of the financial statement is actually by the firm providing the accounting. In my opinion, a lot of lending institutions would find use for these statements over a compiled financial statement with disclosure.
-- Mark Albrecht
CEO, XCM Solutions/Xpitax LLC
I believe there may be some different standards for public companies in the near future with the merging of international standards. Possibly, private companies may be exempt from adopting such standards unless they are global entities.
-- Robert Albrecht
Partner, Gelman, Rosenberg & Freedman CPAs
I am not in favor of differential standards for private and public companies, nor for larger versus smaller governmental and not-for-profit organizations. I do, however, believe that disclosure relief is appropriate for smaller organizations and less-than-full-scope audits may also be appropriate for smaller organizations.
-- Tom Allen
I believe it likely that IFRS for Small- and Medium-sized Entities will be promulgated and SMEs will adopt it as dictated by pressures in the marketplace. That is appropriate given that full IFRS has a number of provisions that are simply inapplicable for SMEs. However, my concern is the effect on third parties -- banks, investors, etc. -- who may only be U.S.-based and have little to no experience with any form of IFRS. We need to ensure there is an appropriate period of time during which an entity that has adopted IFRS is required to also present a pro forma GAAP-based financial statement that can be used by third parties for comparison purposes with the financial statements of entities who have not yet or are not required to adopt IFRS, or to give those third parties, such as banks, more time to modify their own procedures, or increase their understanding of IFRS sufficiently to accept IFRS-based statements in their business relationship with the entity.
-- John Ams
Executive vice president, NSA
As chair of the Blue Ribbon Panel, I am very hopeful we will see change consistent with the panel's recommendations. But given the lack of openness by the FAF in the last six months about what they have done and plan to do, it is very unclear to me where they are headed. The FAF has done everything behind closed doors to this point, so it is impossible to figure out which way the winds are blowing with the body that has the ultimate decision in its hands.
-- Rick Anderson
Chairman and CEO, Moss Adams
If the FAF is indeed serious about setting more reasonable accounting standards for the millions of non-publicly traded companies in the U.S., it is very likely that we'll see a separate standards-setting board for private companies. The separate board will most likely be based on the recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies -- it would coordinate with FASB but its recommendations would not be subject to FASB approval.
In terms of the standards themselves, the separate board would ideally address areas such as fair value measurement, consolidation of entities, uncertain tax positions, goodwill impairment and lease accounting. As it stands now, each of these standards is incredibly complex but provides no real value to the users of private company financial statements.
-- C.E. Andrews
President, RSM McGladrey
There are approximately 29 million private companies and approximately 15,000 public companies in the U.S. Private and public companies have very different needs as it relates to financial reporting. This is recognized by the owners of private companies, lenders to private companies and auditors of private companies. I believe the FAF after careful consideration of the BRP recommendations will recognize this as well and support differential standards set by a separate board reporting directly to FAF.
-- Gregory Anton
Incoming chair, AICPA
Talk about separate standards for public and private companies has been around for more than 20 years. When will our leaders recognize that reporting requirements for these two markets is completely different? CPAs who serve private companies are more involved in helping their clients succeed and run their businesses. They are not there, for the most part, to protect third-party investors.
Eventually we will see separate accounting standards for public and private companies. Hope is currently high. In 2010, the AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy formed the Blue Ribbon Panel on Private Company Financial Reporting. The FAF oversees the Financial Accounting Standards Board, which sets accounting standards in the U.S. There will be a separate board to set standards for private companies reporting to the FAF, as opposed to the FASB.
-- August Aquila
President and CEO, Aquila Global Advisors and Chantrey Capital Advisors Inc.
The trend toward creating two "GAAPs" -- one for large public companies and another for smaller, private companies -- is not a good idea in my opinion.
Most accounting professionals don't like certain specific aspects of GAAP, but creating less stringent standards for smaller or private companies would cheapen GAAP and might even tempt public companies to return to operating as private companies in order to have more flexibility and to reduce costs due to less stringent testing.
That could drain the equity markets of significant value and I don't believe that would be a good outcome, especially given the current economic instability we are experiencing. It also could cause companies to be less diligent in the implementation of internal controls and other important accounting initiatives that allow a high level of transparency for all stakeholders, not just investors.
-- Andrew Armanino
CEO and managing partner, Armanino McKenna
I think it's likely we'll see something soon. Most people understand that the financial information needs of a small business are very different than public companies. Requiring private companies to meet all of the same standards as a public company is unnecessarily burdensome and costly. It's also a business creation issue. When reporting requirements are too heavy, they can act as a bar to the creation of business start-ups. Hopefully the form of the new standards will be based on the recommendations of the Blue Ribbon Panel on Private Company Financial Reporting.
-- Erik Asgeirsson
Since accounting and financial reporting standards are intended to result in decision-useful information being reported for the benefit of general purpose external financial report users who rely on that information, it is likely that clearly differentiated user needs for financial statement information of private vs. public companies will lead to standards focused on meeting those differing user needs. There are a number of ways to address providing such standards based on the different needs identified for private companies.
-- Robert H. Attmore
I believe it to be unlikely we will see differential accounting standards of significance for public vs. private companies in the U.S. in the near future. Nor do I foresee a separate accounting standards-setting board for private company GAAP.
It is likely we may see some form of modification in private company accounting standards, which would deviate from public company standards in disclosure and financial reporting, but not as to measurement. The IFRS decision by the SEC could likely have some bearing on private company standards as well.
-- Billy Atkinson
Immediate past chair, NASBA
I think it would be a big mistake to have separate standards for private companies. Much of the criticism coming from private companies actually reflects the poor quality of GAAP. The answer is fixing GAAP for both public and private companies, not differential standards.
-- Paul Bahnson
Professor of accountancy, Boise State University
It's more likely than not we'll see differential standards. Hopefully the private standards will be far more principal-based, rather than rules-based.
-- Ron Baker
Founder, VeraSage Institute
We polled a sampling of NYSSCPA members on this issue and both our members in accounting firms and those in industry indicated that they would like to see a separate set of accounting standards for private companies, with a majority of members supporting a modification of existing GAAP as opposed to a specific and separate set of standards for the private companies sector. FASB, in the past, has been reluctant to exempt private companies from certain FASB interpretations -- FIN 48, for example -- despite recommendations by its Private Company Financial Reporting Committee to do so; therefore, if separate accounting standards are created for private companies, they should be promulgated by a new standards setting body to be overseen by the Financial Accounting Foundation, not by FASB, in order to guarantee independence.
How likely any of this is remains to be seen. We have the SEC weighing IFRS adoption, which would mean the end of U.S. GAAP, yet we're talking about a modified GAAP for private companies since the Blue Ribbon Panel did not consider any IFRS-based approaches to resolving this issue. Our regulators have gotten cold feet before when deliberating a separate set of standards for private companies; they might again, given the evolving state of standards-setting in the U.S.
-- Joanne S. Barry
Executive director, NYSSCPA
While I'm not a legislation expert by any means, I believe new separate accounting standards for private and public companies in the U.S. is an unlikely situation. For a variety of reasons -- fair comparisons between companies being the main one. For companies looking to go public (as many have as their long-term goals), having to recreate their books under the different public standards, even if only to consider moving to a public company, make this analysis a resource-intensive situation, without clear benefits. Comparisons between companies in similar industries would also become increasingly difficult with separate standards. The whole reasoning to having standards is to make things easier! While it is fair to continue having public and private companies required to release different information, the existing consistency can most certainly be seen as a positive for the accounting and business community.
For accountants, having a single set of accounting standards is even more important. Moving from a private to public company in one's career (or vice versa) is a common occurrence, and to have to re-learn a new set of standards can make this transition more difficult. The transferrable skills one has as an accountant are extremely valuable, and with streamlined accounting standards across both private and public companies in the U.S., the value of these skills only increases.
-- Kasey Bayne
Accounting ambassador, FreshBooks
In my opinion the likelihood of separate standards for private and public companies in the near future is high. While there was disagreement between the minority and majority opinions of the recent Blue Ribbon panel regarding the creation of a new entity, there was strong agreement that the current model is not working. The recent FAF discussions imply that the creation of a new board may be unlikely. A middle-ground position, that I believe may occur, would be adding new members to the existing board that are given autonomy authority on private company matters.
-- Ken L. Bishop
President- and CEO-designate, NASBA
I think it is highly likely, as there are really no realistic options. Private business does not have the resources to adopt IFRS, and will continue using U.S. GAAP and/or a modified U.S. GAAP more specific to closely held, privately,owned companies. The reality for private businesses' use of IFRS is further distanced due to a continued weak economy, which has most businesses scrambling just to get by.
-- Parnell Black
Separate accounting standards for private and public companies are crucial to continuing the economic recovery. The challenges of the last few years have prompted an increase in the number of small-business start-ups, creating new jobs and fueling growth. The differences between the financial reporting requirements in private and public companies warrant different standards that reflect the needs of owners, employees and other stakeholders. I believe simplified and relevant standards for privately held companies will trigger more start-ups and, in turn, continue to stimulate economic growth. We can't ignore the politics of the issue, though, with oversight authority as a significant barrier to change. This is the primary reason it may be a prolonged transition. Eventually, I believe we will have international standards that specify different requirements and the U.S. should take a leading role in this movement.
-- Jim Boomer
CIO and shareholder, Boomer Consulting
I believe different standards for private companies are likely and justified, yet politics are a viable force. We are in a period of transformation from a depleted economy to an emerging and growth-based economy fueled by entrepreneurism and the Internet platform. The majority of new jobs are created by privately held companies whose reporting requirements are much different than public companies. Ultimately I believe separate standards will emerge globally and the U.S. should be a leader and not a follower.
-- L. Gary Boomer
CEO, Boomer Consulting Inc.
It amazes me that so many individuals don't recognize the importance of separate standards. As a partner in a large regional CPA Firm, I get it and understand it. A majority of our clients are large, closely held business. Many of those clients struggle and incur significant costs in order to comply with the numerous standards that have been released over the past couple of years. In fact, we are often urged by our clients to assist them in educating their lenders about these standards and why they are important to be applied at their level. All too often, it is the lender that requests that we prepare GAAP-departure financial statements in order to present them financials that are comparative and "more" meaningful for the size and status of the company.
Many of those in a position of rule-making authority don't quite understand the needs of closely held business and also are not well-informed about the needs of lenders in this space.
I really do believe that we will eventually be there. Where? In a space that recognizes that the financial standards for publicly held companies need to differ from those of closely held business. It is starting to happen, but we are a long way from where we need to be. The closely held business community (including those lending in this space) need a greater voice at the rule-making table! Only then will we start to see meaningful progress in this area.
-- Jim Bourke
As an organization, we believe that a single set of accounting standards for all companies is preferable. There may be opportunities to simplify disclosures for private companies. Having different standards for private and public companies could create confusion in the profession, make financial comparisons more difficult, and may lead to negative perceptions of private companies' financial reporting. Of course, many public companies struggle with the same standards as private companies and we would all benefit from simplification of accounting.
The Financial Accounting Foundation is considering the recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies, which recommended, among other things, a separate standard setter (equivalent to FASB) for private companies. We cannot yet tell where this will lead. A more likely approach might involve a standard-setting or advisory body representing private constituents making standard-setting recommendations to FASB.
-- Beth Brooke
Global vice chair for public policy, Ernst & Young
It is very unlikely that separate accounting standards will be established for private and public companies in the U.S. in the near future given the complex and difficult issues that need to be resolved prior to implementation. Furthermore, introducing these standards without a thoughtful understanding of the ramifications of such standards to all types of clientele would not be good for the capital markets that are still recovering from the economic recession.
-- Raymond Buehler
President and CEO, Schneider Downs & Co.; chair, IGAF Polaris
When I was in graduate school for MPA, our most advanced accounting class had a one question for the three-hour final exam -- "When is GAAP, CRAP?" This issue has yet to be addressed over 25 years later. The need for differential standards underscores the reality that private company financials can be materially misleading. If our profession unites and executes the call to action from the AICPA, I do think we will see revised financial reporting standards in the near future. Ideally, the powers to be will adopt the Blue Ribbon Panel's recommendations here.
-- Peyton Burch
Senior channel executive, Intacct
As a practical matter, it is not likely that we will see separate accounting standards for private companies in the near future. However, all stakeholders (users, Blue Ribbon Panel, FASB, etc.) recommend a second set of rules for private companies. In the distant future, there appears to be adoption of the small-business IFRS (I prefer this solution, as it appears that a global economy needs a global standard) or a "FASB-lite" developed by a FASB subcommittee. Given the alternatives, the most likely outcome would be a second board that will make exceptions to the current standards for small companies.
-- Jim Buttonow
Co-founder, New River Innovation
I do not think this is likely with the current administration.
-- Paul Caron
Publisher and editor-in-chief, TaxProf Blog
Users of private company financial statements have fundamentally different needs from users of public company financial statements. As a result, I believe we will see change that recognizes their respective differing needs.
-- Stephen Chipman
CEO, Grant Thornton
The adoption of differential standards between public and private companies is very likely and will start with existing standards for public companies, then provide modifications for private companies. This will be a valuable improvement.
-- Timothy Christen
Chairman and CEO, Baker Tilly Virchow Krause
It is a bit of misdirection to state that we do not have separate standards for private vs. public companies. There are numerous differences currently. It is certain that there will be an increasing attention paid to standards for private companies by FASB. I believe there is a middle ground, where a continuum of precision within measurements will continue to evolve, with the smallest entity financial statements less precise than the statements of large public companies. The method for this calibration is the subject of some debate, but there is dialogue on how to accomplish it. Unfortunately I believe there is too much debate being placed on the need for a separate board in order to accomplish meaningful change. I don't see that as a benefit and it has a high potential for unintended consequences. For instance, how do you "control" the appointments to be sure this separate board actually delivers these "needed" revisions?
-- Robert Ciaruffoli
Yes, given pressures in the marketplace, along with the divergent needs of private vs. public entities, I believe there will ultimately be "private GAAP" separate from "public GAAP."
-- David Cieslak
Principal, Arxis Technology
Likely. Public companies will have to report using IFRS, and private companies will continue under current accounting standards.
-- Sharon Cook
Incoming president, National Society of Accountants
I think it likely that there will be differential standards or applications for private companies. But I believe that we must be more attentive to the user community in making the decision to apply differential standards than the most recent deliberations have documented. We know how the CPA and professional community feel about the issue, and while their input is important, the larger weight should be given to the user community. I also think the FAF will proceed cautiously in moving in the direction of private company standards and initially such standards adaptation to private companies will be more of a marathon than a hundred-yard dash.
-- David Costello
President and CEO, NASBA
I believe it's highly likely within the next five years, if not sooner. It will start with private standards as a modification of public. But over time, the two sets of standards will become more and more unique. Markets end up, one way or another, customized to what the buyer or user needs.
-- Gale Crosley
I feel that it is likely in the near future, and it is overdue. While I believe that they will initially be set by a single board of FASB, the long-term process will likely be determined once the global standard-setting process is completed. As for the form of the standards themselves, I believe that exceptions to the public company reporting standards will be accorded to the private company sector.
-- Michael T. Daggett
It looks more likely that in the near future we will see separate accounting standards for private and public companies in the U.S.
This is not new. There is a recent trend towards countries developing accounting standards to meet the specific needs of private companies' investors.
Here are some recent examples:
1. The Canadian Accounting Standards Board published Accounting Standards for Private Enterprises in December 2009;
2. The UK Accounting Standards Board has proposed a three-tier system of financial reporting (quoted, unquoted, and small companies);
3. Germany has become the first major country to have two standard-setters;
4. A Council on Accounting for Unlisted Companies formed in Japan to determine if changes should be made to standard-setting process for unlisted companies; and,
5. IFRS for SMEs is being used in many areas of the world (approximately 70 countries)
Different factors could explain this trend. First, there are too many GAAP-specific requirements that are not useful or relevant for private companies' financial statement users. Second, FASB puts too much emphasis on public company investors. And finally, the existing accounting standards are more complex, burdensome, and not cost-beneficial.
In our opinion, it may take several forms: either a common or a separate board with standard-setting authority and potential modifications to existing and future GAAP that take into account the unique needs of private companies' financial statement users.
This boils down to the specificities and needs of the U.S. capital markets.
-- Patrick de Cambourg
President and CEO, Mazars
While the Blue Ribbon Panel on Private Company Financial Reporting recommended a separate standard-setting authority, and changes to existing generally accepted accounting principles, I believe it is unlikely we will see a "Little GAAP" any time soon, as there is still significant education and ultimately I think even then there will be reluctance by our profession and users of the financial statements to adopt another GAAP.
-- Jeffrey Deane
Partner and CEO, Malin, Bergquist & Co.
Based on the slow pace of enacting any rule changes in our current environment, I do not see this in the near future.
-- Michael Di Girolamo
Managing director, Investment Advisors Division, Raymond James Financial Services
I think it is very likely. As there are varying opinions on the approach to separate standards, I believe that the final result is yet to be determined and that it will be a compromise and will potentially emerge as a hybrid of a completely separate board scenario. As an example, it could possible evolve as a subset/sub-board of the current FASB.
-- Loretta Doon
CEO, California Society of CPAs
Over the past year there have been signs of momentum on the subject of private company accounting standards. FASB has added board members with private company experience and stepped up its attention to private company matters. The Blue Ribbon Panel on Standard-Setting for Private Companies has issued its report. The FAF has named a working group on standard-setting for private businesses and nonprofits, and FASB has begun developing a differential standards framework.
However, it is unclear whether we will see final action on private company accounting standards within the next year. This is a significant topic, many concerns must be addressed, and the policy agenda is already crowded with issues related to accounting standards.
The Blue Ribbon Panel has recommended developing separate standards for private companies and establishing a new standard-setting body that would assume from FASB final authority on private company standards. The FAF working group is to address these recommendations and determine next steps.
Proponents of a new approach to standards have made a strong case. The Blue Ribbon Panel recommendations highlight relevant issues and frame a possible solution, facilitating consideration by the FAF. However, the FAF has indicated that it views the report as but one of many inputs it considers important. Its working group is scheduled to pursue additional research and give a progress report in the fall.
There are concerns about the complexities inherent in adding a new set of standards, particularly given the overlap with debates on GAAP-IFRS convergence and the adoption of IFRS.
With the Blue Ribbon Panel report under review we are closer to resolution than before, but rapid progress in the near future will be difficult given the topics that must be addressed and the fact that the IFRS debate has a prior claim on the people and organizations involved in making decisions on accounting standards.
-- Joe Echevarria
I think we will see some form of separate accounting standards for private and public companies. Certainly there is a need for it. My guess would be that it would not be a separate set of rules, but rather a set of exemptions to GAAP for public companies.
-- George Farrah
Executive editor, Tax and Accounting, BNA Inc.
Despite the activities of the last few years, I do not believe it is likely that separate accounting standards for private and public U.S. companies will be established in the near future. Even though the formation and work of the AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy Blue Ribbon Panel have brought greater visibility to the topic and driven more focused and meaningful discussions, a critical mass of support does not seem imminent (yet).
There are still too many open questions on private company financial reporting, and broad support for the specific recommendations of the Blue Ribbon Panel is lacking. The need for modified accounting standards for private companies seems to be universally accepted, but exactly how to achieve them is still subject to considerable debate.
The feasibility of maintaining public and private IFRS and U.S. GAAP is a big concern, and fears of creating yet another separate standard-setting board have yet to be allayed. In addition, it may prove difficult to move in this direction without creating even more complexity at a time when many are working to drive down complexity of accounting standards and reporting. Until those questions are answered, we're still a long way off from having separate accounting standards for private and public companies.
-- Scott Fleszar
Vice president of strategic marketing, The Tax and Accounting business of Thomson Reuters
The Financial Accounting Foundation currently is reviewing private company accounting standards, including the recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies. The FAF also is conducting outreach to various stakeholders on suggested improvements. I applaud the FAF for including the viewpoints of the standard-setting stakeholder community as part of its review.
I am in favor of solutions that promote consistency in the standards for financial transactions for both private and public companies and avoid any negative impact on the quality of the resulting standards. I understand, though, that the standards need to be appropriate for the full range of companies that use them.
-- Cynthia Fornelli
Executive director, Center for Audit Quality
It depends on what you mean by "in the near future." It has taken us years and we still haven't signed up for IFRS, which is a total no-brainer (U.S. vs. the rest of the world, as usual). Separate standards have to come; it is blindingly obvious that accountants are wasting their time and the clients' money calculating earnings per share and other irrelevancies.
-- Christian Frederiksen
Chairman, The 2020 Group
I'm not sure if we will ever see different standards but I think we need them. I would rather characterize them as incremental standards for public companies.
-- Barry Friedman
Differential accounting and disclosure standards for U.S. private companies are here to stay. Private companies and their users do have different needs than those of public companies and their investors.
Over the past few years, the profession has seen a gradual but substantial shift in standards, most of them ascending from both FASB and the IASB's efforts to converge their accounting standards. Many of which are calendared for 2011, as a result of the positive and negative pressure imposed upon them by the IASB and to some extent the SEC.
Both private and public companies were expected to adopt and apply the final standards; however, the AICPA, FAF and NASBA created the Blue Ribbon Panel. Its purpose was to study and assess differential standards for private companies standards based on current U.S. GAAP and called for the creation of separate board to set or modify accounting standards for private companies.
FASB has also created a 10-member Private Company Resources Group inclusive of financial statement users, preparers and auditors of private companies to evaluate and advise the board in developing a differential decision-making framework. Their assessment was focused on six key differences identified: types of users, access to management, investment strategies, ownership structures, accounting recourses and education.
When it is all said and done, I believe the differences in the standards between private companies and public companies will continue to grow. As private companies fight to maintain a more simplified method of recognizing revenue, accounting for off-balance liabilities, consolidations and current financial statement format and disclosures, public companies will most likely adopt and apply many of the new International Financial Reporting Standards. Private and public companies are very different in how they are created, how the operate, how they raise money, how they are viewed, and how they report to their equity holders; why, then, shouldn't their accounting and disclosure statement be different than those of private companies?
-- Lou Fuoco
Managing director, Fuoco Group
I certainly hope that we'll see separate standards for private and public companies!
-- Michelle Golden
President, Golden Practices
I think we are headed towards different accounting standards for public and private firms. I think this is a reflection and acknowledgement of the fact that while some level of standardization is needed, public and private companies do have different pools of stakeholders and potential investors and thus different reporting requirements and needs.
-- Jeff Gramlich
President, CCH Small Firm Services
I do not see this in the near future!
-- Larry Gray
Government liaison, NATP
I do think it is highly likely. I am not certain as to whether this will take place in the near future but certainly in the future. I think at this point it is hard to determine what form they will take. It may be that certain standards only apply to public companies because it makes more sense than to apply them to private companies.
-- Angie Grissom
Executive vice president and COO, The Rainmaker Consulting Group
I don't think we will see this in the near future, though the focus on differential standards will continue.
-- Calvin Harris
National president and CEO, NABA
Since we do not deal with public companies, this should not impact our customer base at all unless they require non-public companies to follow public company guidelines in the future.
-- Roger Harris
President and COO, Padgett Business Services
It's unfair that the 29 million private companies (over 500,000 of them nonprofits) in the United States might have to adhere to the cumbersome and expensive accounting procedures required of public companies that deal more in investor relations and have publicly traded stock. The private, often smaller companies should be allowed to focus on cash flow and profitability, and shouldn't be held to exactly the same standards because they don't apply.
I feel that if the Securities and Exchange Commission decides this year on adopting International Financial Reporting Standards and incorporating them in the next 5-6 years, we may see more of a focus on separate accounting standards in that timeframe. We may see standards and accounting practices governed through standards suggested by the Private Company Financial Reporting Committee. Their version of the International Financial Reporting Standards for Small and Medium-Sized Entities would focus more on tracking cash flow and profitability in the short term, and less on forecasting earning and long-term projections.
-- John T. Hewitt
Founder and CEO, Liberty Tax Service
I believe the future is already here, in major respects, for some level of differential standards, even if something short of a full set of GAAP for private companies, or a private company standard-setting board. I say that because FASB Chairman Leslie Seidman has already said as much, in terms of FASB announcing, upon receipt of the recommendations of the Blue Ribbon Panel on Private Company Standard-Setting, that FASB would immediately aim to implement doable changes in the short term, such as considering simpler disclosure requirements for private companies, and potential additional time for private companies to implement various standards.
I feel strongly that the arguments of private companies about differential needs of their users, and about cost-benefit of following certain GAAP requirements that were driven largely by public company users, but not as relevant for private company users, needs to be seriously considered. I have heard stories from our members where they invest significant time and cost within their companies, and additional time and cost of their auditors, to fulfill certain GAAP requirements, when the information is basically ignored or unwound by the primary users of their financial statements, such as their lenders. This is a needless expenditure of limited resources that could be put to better use investing in growing the business.
Our Committee on Private Company Standards was literally the first to formally comment on FASB and the FAF's consideration of the Blue Ribbon Panel report, by sending a comment letter in April of this year, supporting the need for differential accounting and disclosure for private companies, based on the needs of their users, and suggesting the formation of a Private Company Task Force -- modeled after the Emerging Issues Task Force -- to address issues relating to private companies, empowered to develop standards as the EITF is, which are released for public comment and approved by the FASB. This was an early, out-of-the-box suggestion by our Committee on Private Company Standards, which continues to follow developments on this matter.
-- Marie Hollein
President and CEO, FEI
If the FAF listens to the perspectives of users, preparers and the CPA profession and their letters - 100 percent. There is overwhelming support by the CPA profession and business community for the recommendations in the report by the Blue Ribbon Panel.
-- Tom Hood
CEO and executive director, MACPA
It is more likely than not that we will see separate accounting standards for private and public companies in the U.S. in the near future. The former will arrive before the IFRS standards for SMEs are phased in in the U.S.
It is my hope that, under the FAF, a committee, separate and distinct from FASB, will develop the accounting standards for private companies. These standards will probably take the form of modifications to the FASB Accounting Standards Codification.
-- Andrew L. Hult
I do believe separate standards will be created to address the gap in GAAP that exists between public and private companies.
-- Trey James
The word "standard" and the expression "near future" are a non sequitur. I do not believe that we will see a separate accounting standard for private and public companies in the near future. Although the engine for growth in the U.S., small private companies will continue to be burdened by a large public company accounting standard for the foreseeable future.
-- Edward V. Jennings
Separate standards are likely. We need enough reporting from small-to-medium businesses to represent the risks of loans or raising capital, and that the financial statements accurately represent the health of the company. For small and medium business, we don't need many of the reports, controls and other items that large business needs. More automated reporting for both standards would be helpful so KPIs and analytics could be run between related industry businesses.
-- Randy Johnston
Executive vice president and partner, K2 Enterprises
Not likely; as businesses become more global, it's more likely a universal accounting standard will be put in place.
-- Greg S. Jones
CEO, Bookkeeping Express
I do believe it is appropriate to recognize the special needs of private company financial statement users. I believe it likely that significant modifications and changes to U.S. GAAP will be made to recognize those needs and they will be made under the auspices of a new standard-setting board that will be established under the oversight of the Financial Accounting Foundation.
-- Edward S. Karl
Vice president of taxation, AICPA
-- Rita A. Keller
President, Keller Advisors
I think we will definitely see private GAAP/"Little GAAP" and that it a new group will be created to monitor it, as FASB and the big guys don't know how to deal with small business.
-- Roman H. Kepczyk
Director of consulting, Xcentric
I believe strongly that we will see separate accounting standards for private and public companies. Its time has come and the politics and infighting of it not happening need to become a thing of the past.
-- Allan D. Koltin
CEO, Koltin Consulting Group
I do not believe that it is likely we will see separate accounting standards for private and public companies. Over 25 years ago I wrote a white paper on this same topic when it was referred to as "Big GAAP and Little GAAP," which was intended to address separate accounting for public vs. nonpublic companies. This same issue has been discussed at various times over the past 25 years without any substantive results. The accounting profession continues to wrestle with more important priorities including IFRS, issues with fair value measurement and financial instruments, and the continued evolution of practice standards to address contemporary client business issues that face auditors and tax professionals.
-- Kenneth Koskay
Vice president of learning solutions, The Tax & Accounting business of Thomson Reuters
The AICPA worked with the Blue Ribbon Panel to look hard at this very issue. Their recommendations were clear that a separate board was necessary to look at current standards and provide exceptions for private companies for both measurement and disclosure. If we are going to see real change and relief for private companies, we should follow the Blue Ribbon Panel's recommendations.
-- Mark J. Koziel
Vice president of firm services & global alliances, AICPA
This has been highly controversial since the FAF's Blue Ribbon Panel recommended that there be separate standards for public and nonpublic companies. While I support the recommendation -- I believe it would be positive for both public and nonpublic companies -- I don't think it will ever come to fruition. There are just too many powerful interests involved that will likely oppose the recommendation because of the complexity inherent in having two sets of standards.
-- Gordon Krater
Managing partner, Plante Moran
For years I have heard about Big GAAP vs. Little GAAP. As the owner of a small firm, my clients, small private "mom & pop" companies, demand different financial needs from the public companies. One day, a separate set of accounting procedures will exist that will simplify the accounting process for the small private companies.
-- Lana Kupferschmid
Incoming president, NCCPAP
If the near future is the next 2-3 years, I don't think it is likely. You have to ask yourself the value in change. Already there are different requirements for public and private companies, even though we all follow the same standards. Materiality is the primary differentiator in how the standards are interpreted today and I think it makes sense. Focus should remain on the public companies and not the private.
-- Rene Lacerte
Founder and CEO, Bill.com
I remember answering this same question in 1978 as a partner in a newly formed local firm. I believed then that we needed bifurcated standards, and I believe it even more strongly now. The profession can effect this change if we work together. I estimate the chances of successful implementation are 50/50 for the next few years. If it doesn't happen by 2014, I believe it will unfortunately be deferred for another 30+ years.
-- Gregory L. LaFollette
Director of product strategy, CPA2Biz
I believe the work of the Blue Ribbon Panel on Private Company Financial Reporting, as well as other activities, have shown the Financial Accounting Foundation that differential standards are necessary. That is the case internationally, as well as in Canada. Therefore, I feel very confident that the FAF will work hard to show stakeholders that they are in touch and that they have heard them loud and clear.
The most likely way forward, in my view, will be the creation of a separate group, similar to the Private Company Financial Reporting Committee, that will present recommended private company changes to the Financial Accounting Standard Board. While I hope the FAF will accept the BRP recommendation and create a separate and equal board to FASB, I don't believe that will happen. Nevertheless, the International Auditing and Assurance Standards Board has shown that separate, far less complex standards are possible even with one board. Therefore, even if the FAF does not create a separate board, I am very hopeful that we will finally see real significant changes.
While I appreciate the arguments against differential changes from a theoretical perspective, the fact is that today's accounting standards are not focused on small-business users, nor do they take into effect the cost benefit of users of small-business financial statements.
When one considers the number of financial statements that are prepared for smaller private entities (regardless of whether those statement are compiled, reviewed or audited), there must be some relief provided these entities, for their sake and the sake of the users.
-- Charles E. Landes
Vice president, Professional Assurance Standards and Services Group, AICPA
I'm not sure on the likelihood of this occurring, but it would certainly be a boon to small businesses to be free of some of the heavy financial reporting burdens of large companies.
-- Mont Levy
CEO and principal, BAM Advisor Services
I don't think it is likely.
-- Taylor Macdonald
Vice president of channels, Intacct
I believe that we will see a new set of accounting standards for private companies in the near future and that they will be a modified form of GAAP.
-- Barry MacQuarrie
Consultant and IT director, KAF Financial Group
For privately held companies, accounting standards can be far more lax because there's no public scrutiny over their methods of reporting, but for publicly traded companies, I think the scrutiny will increase over time, becoming more stringent and standardized. Accounting standards between private and public companies can't be compared to each other!_
-- Jessica Mah
Founder and CEO, inDinero.com
I am cautiously optimistic that the Financial Accounting Foundation will consider the decades of analysis on this issue and listen to the valid concerns voiced by practitioners, preparers and users of private company financial statements, many of whom want to see the creation of a separate board for private companies under the FAF's oversight. I believe the creation of this board, which would have standard-setting authority and the ability to make modifications to U.S. GAAP, is a likely result and what the marketplace truly needs.
-- Janice M. Maiman
Senior vice president of communications and media channels, AICPA
I think it's quite likely. The standard-setting process will probably include a separate new board that would focus on making exceptions and modifications to U.S. GAAP for private companies.
-- Eric Majchrzak
Marketing and communications director, Freed Maxick & Battaglia CPAs
I'm hopeful we will see a change in attention to how private companies are required to apply accounting standards, i.e., that a separate board, consisting of individuals with significant private company experience, will determine exceptions and modifications that apply to private companies for new and existing standards issued by FASB. I'm hopeful the Financial Accounting Foundation will ultimately adopt the recommendations of the Blue Ribbon Panel on Standard Setting for Private Companies. We have debated this issue in our profession for over 30 years; it's time we make the systemic changes necessary to ensure accounting standards provide relevant and useful information to meet the needs of users of private companies in a cost-effective manner.
-- Krista M. McMasters
CEO, Clifton Gunderson
Differential standards for private companies are necessary, in light of the growing divergence between the financial reporting realities and needs of the public company sector and the private company sector. Moreover, as the pressures and complexities of reporting in the public company arena intensify, we need to ensure that private companies are not needlessly swept up into them when following GAAP. This fact and the need for differential standards are being understood more and more by the CPA profession and private company constituents. The necessity and demand for differential GAAP encompasses all aspects of accounting including recognition, measurement, presentation and disclosure of financial information.
The Blue Ribbon Panel on Private Company Financial Reporting recommended the way forward for private company accounting and the AICPA supports that vision. Modifications and exceptions to GAAP for private companies should be developed and incorporated into the existing GAAP codification. Crucially, these differential standards need to be developed by a separate board or body, with standard-setting authority and reporting directly into the FAF. That new board's members would come from the private company sector and be attuned to the private company sector.
The BRP recommendations should be adopted and we are closer than ever before in the 30-plus-year history of this issue. But it is essential that firms that serve the private companies of the U.S. write to the FAF now and that they engage clients as well as users such as community banks to write.
-- Barry Melancon
President and CEO, AICPA
This has been discussed for the last 20 years, and this is the closest we've ever been to formally addressing the unique needs of non-public companies and users of their financial statements. The AICPA is pushing hard for separate standards, as are the state societies, but not everyone is on board. One thing to keep in mind as this process unfolds is the demand for private company GAAP will likely become even more acute if the SEC mandates IFRS for public companies, consistent with other countries that are keeping national GAAP for private companies.
-- Steven Charles Mendelsohn
President of Knowledge Solutions, The Tax & Accounting business of Thomson Reuters
I think it is totally unlikely. Those advocating this change have no clue as to what they are trying to accomplish, other than a vague notion that they can reduce compliance costs. What they don't seem to comprehend is that issuing financial statements without information content will not create much benefit for anyone, including the issuers and the auditors.
If there is to be a different set, it should be a fresh start with the goal of replacing cost-based reporting with information about market values of assets and liabilities. This information is relevant for the two primary decisions financial statement users make about a private company: How creditworthy is it? What is a fair price to pay or receive in an acquistion?
Unless the advocates understand this need, they won't get their board; if they do get the board, it will not be successful.
-- Paul B.W. Miller
Professor of accounting, University of Colorado at Colorado Springs
Given the current momentum with FASB's development of a differential framework, I think it is likely that we will see separate standards. I think that FASB will organize itself to govern these separate standards accordingly. The distinction will likely occur along the six significant factors identified in FASB's initial assessment.
-- D. Scott Moore
Immediate past president, AAM
I hope we do not see an entirely separate set of accounting standards just for private companies. In my view, this would only add complexity and cost to the standard-setting system we have today, which is already very detailed and complicated. We believe that in most cases, the economics of transactions should result in similar accounting -- whether or not a company is publicly or privately owned.
That being said, we know there are limited situations where private companies will need to account for some transactions differently than public companies. We believe these differences can be addressed by making changes to the staffing and responsibilities of the Financial Accounting Standards Board, rather than creating a new board or a new set of accounting standards for private companies. PwC published a point of view in March 2011 with more details about how this approach might work.
As globalization continues to take hold and as commerce expands to new markets, we are beginning to see movement toward converging rules and standards in many areas, including a single set of high-quality, international accounting standards. In the end, I believe this will make things simpler, clearer and less costly for investors and others users of financial information -- who increasingly are looking for investment opportunities all around the world and want to see financial results reported based on globally consistent accounting standards. Differences in accounting standards for private companies need to fit into this framework.
-- Robert E. Moritz
Chairman and senior partner, PwC
Standardizing on a single set of accounting standards for private and public companies alike will be more beneficial for the accounting industry than having differential standards. Having differential standards would place a huge amount of pressure on finance departments -- many of whom are still wrestling with other pressing financial reporting demands, such as some of biggest revenue recognition changes in years -- with the advent of EITF 08-01 and EITF 09-03 passed by FASB in the fall of 2009. Some businesses we speak to are still struggling to comply with Sarbanes-Oxley, because of limitations in their business processes and software systems.
What's clear to us is that businesses, especially global ones, that have a mish-mash of Stone-Age ERP systems, multiple instances, and manual integrations are going to have a very painful time meeting these new standards -- and are going to be at a disadvantage. The big advantage for our customers is that because they are running on NetSuite's cloud financials, whether it's a single entity or a multi-sub, we can roll out upgrades to support the latest financial standards to them automatically, just as we did with supporting EITF 08-01 and 09-03 -- and let them focus on running their businesses instead.
Having one set of accounting standards for private and public companies is going to benefit everyone in the long run. Accounting is key to every business (private and public), thus having two separate standards does not make the most sense -- as it will just add to the complexity already associated with the finance profession. Take for instance third parties -- investors, auditors, etc. -- when they are trying to evaluate and compare financial results for companies (private and/or public); it will create more difficulties understanding the two separate sets of standards, on top of other compliance regulations and international standards that accountants have to follow. Standardizing on a single set of rules for both private and public companies alike sets the same standard while it helps simplify processes and create greater business efficiencies, whereas having differential standards will complicate accounting principles and make the process more cumbersome and time-consuming.
-- Zach Nelson
President and CEO, NetSuite
About as likely as Grover Norquist is to support any tax policy ideas put forth by President Obama.
-- Caleb Newquist
Founding editor, Going Concern
The operative words in your question are "in the near future." While I do believe we will see the eventual adoption of "differential standards," I do not see it occurring in the near future. My guess is that this is a good three years away. Our regulatory agencies abound with other issues to be resolved and Congress is too dysfunctional to agree on any effort such as this in the "near future."
-- Jay N. Nisberg
President, Jay Nisberg & Associates
I believe it is a very good possibility that we will see separate accounting standards for private and public companies in the U.S. in the future. It really has to go in this direction because the companies are so different in the way they are managed. Public companies are run for the shareholders, which in most cases they have thousands of, and they can be across the world. Private companies are typically owned and managed by smaller groups, and typically by people who know each other. It would definitely be a benefit for a different set of standards for private and public companies.
-- David J. Nissen
Managing partner, Mueller & Co.
I believe that we are going to see action on differential accounting standards given the current state of our economy. Small private businesses, especially mom-and-pop shops, have been and remain the lifeblood of the U.S. economy. Thirty percent of our clients are small-business owners, and they play a huge role in hiring and stimulating local economies. Making private companies, especially small businesses, follow accounting standards that are geared to large public corporations will hamper their economic recovery. Regulations intended for huge public companies do not help Main Street America. The current standards seem to be hampering small-business growth, which could be slowing the country's economic rebound. I believe that as the government looks for ideas to jumpstart the economy, differential standards must be seriously reviewed and considered. Several CPA associations, such as Maryland, are already endorsing the creation of a private company standards board. The challenge will be to organize these exploratory committees together to create a final proposal and to create an independent board to monitor private business. I believe that you will see the implementation of separate accounting practices in the near future.
-- Roger Carlton Ochs
President, H.D. Vest Inc.
There are already some differences for private companies in existing GAAP and more disclosure differences are in the works for revenue recognition and leases. I don't think we will see a separate set of standards, but we will see differences/carveouts/exemptions for private companies within existing GAAP.
-- Judith O'Dell
Chair, FASB Private Companies Financial Reporting Committee
I believe the market will drive this outcome more than the regulators. Whatever standards are ultimately recommended, the cost/benefit ratio and market reluctance of private companies to embrace excessive oversight will be the arbiter of standards.
-- Edith Osborne
CEO and mentor, Mentor Plus
The current attempts by FASB to develop different standards for private companies is a good starting point -- but it is only a "Band-Aid" until the Financial Accounting Foundation buys into this. It is critical to our profession that this be done; otherwise, smaller companies will not be able to afford to have audits. Hopefully the foundation will accept many of the recommendations of the Blue Ribbon Panel.
-- Barbara Oswalt
Tax and business valuation director, Hoyman Dobson
I do believe this is likely and would bet on the Private Company Financial Reporting model endorsed by the AICPA.
-- Jeffrey S. Pawlow
CEO and managing shareholder, The Growth Partnership; CEO, iShade
Earlier this year, the FAF trustees created a Working Group to do an in-depth examination of standard-setting for non-public entities. It is looking at the issue from all sides, and is currently interviewing a wide range of stakeholders as part of its research. We expect the Working Group to report on its findings by the end of this year.
-- Teresa S. Polley
President and CEO, Financial Accounting Foundation
It is not only very likely, but very important that small and medium-sized non-public entities be allowed to report under a set of accounting standards that are relevant to their needs. I believe the Blue Ribbon Panel's recommendations are a good start towards achieving this needed reform. It is important to consider the cost/benefit aspects of standards and regulations. Smaller, non-public entities often do not have the resources to justify the benefits of increased regulation and disclosure, and the users of their financial report often do not benefit from the additional information they are forced to provide.
-- Charles Postal
Managing director, Santos Postal & Co.
It's highly likely that we'll see something different for private companies in the near term. What we end up with may not resemble the structure recommended by the Blue Ribbon Panel, but it's clear that the recommendation and attendant need is resonating with a lot of people and in many corners of the business world. FASB has taken near-term steps that indicate sensitivity to the issue and that will likely continue, regardless of whether a new structure is put into place as envisioned by the Blue Ribbon Panel.
-- J. Clarke Price
President and CEO, Ohio Society of CPAs
I do not think that separate accounting standards are likely to happen in the near future. Since it is a complex issue, and there are many opinions on the subject, it will take a lot of effort to accomplish a workable set of standards. Indeed, the issue exists because most of the recent changes to standards have revolved around the needs of investors in public companies, while almost ignoring the needs of private companies and their investors and users. It has been suggested that another FASB work out the needs for small business. With a separate group focused on small-business standards, the standards could be less costly and more relevant to users. At the same time, the fundamentals need to be practiced across all companies, so the two groups, public and private, would have to agree on the fundamentals and where there could be differences. I believe that interaction will take a long time to resolve, and then there is the education and training of the profession. The bottom line is -- with close to 30 million private firms in our economy, the standard-setters need to take steps to gain the input of small business and have them as part of the standards process. It will just end up taking a lot of time and effort.
-- Robert Reid
While I think it's needed, I don't see it happening in the next few years
-- Rick Richardson
Managing partner, Richardson Media & Technologies
Highly likely -- Canada already gone that way, having already implemented IFRS
-- Daryl Ritchie
Right now, I don't believe a separate board will be established for creating accounting standards for private companies. I think FASB will continue to issue standards for both public and private companies, but the efforts of the FAF's Blue Ribbon Panel in looking into the matter are not in vain. Since its recommendations have been announced, FASB has made several changes to address the concerns of private companies, including adding a CFO from a privately held grocery store to its board. As FASB adopts new standards, it's specifically addressing the concerns of privately held companies too. In short, FASB has really tried to address small-company concerns, which has been long overdue.
-- Kevin Robert
CEO, Wolters Kluwer Tax & Accounting
Very likely that there will be separate standards.
-- Marc Rosenberg
President, The Rosenberg Associates
I would hate to see separate accounting standards for private and public companies. However, if and when IFRS is adopted, I believe that we will go down the road of two standards. Small-company GAAP will begin as a simple version of current GAAP, but get very complex as the year goes on.
-- Frank K. Ross
Director, Center for Accounting Education, Howard University
As Schenck concentrates heavily on servicing privately held companies, we believe it is important that the much-needed historic changes in private company financial reporting take place. I believe there will be a compromise of some sort, but not to the extent we and the private companies would like to see. I thank the Blue Ribbon Panel for their direction.
-- Diane Roundy
Director of business development, Schenck
While this isn't exactly my area of expertise, it does seem more likely than ever before that the standards for private companies will be revised this fall. What form will they take? It's anyone's guess.
-- Bonnie Buol Ruszczyk
President, BBR Marketing
The SEC is being asked to consider a long transition period where either GAAP or IFRS could be used. Public companies could move quickly to IFRS, while private companies might tend to retain GAAP as long as possible, seeing no benefit to the change. Long-term, however, I tend to think that both private and public companies would move to the same system, since a chief purpose of the move to IFRS is to have one international reporting standard.
-- Mike Sabbatis
President and CEO, CCH, a Wolters Kluwer business, North America
As U.S. GAAP has become more complex, private-company preparers have become increasingly vocal in favor of reducing the burden of financial reporting. In response, a Blue Ribbon Panel was formed in 2009 by the American Institute of CPAs, the Financial Accounting Foundation (FASB's parent organization) and the National Association of State Boards of Accountancy to study this issue, and included representatives from several financial reporting constituencies, such as lenders, investors and owners, and preparers, auditors and regulators. Earlier this year, the BRP released a report to the FAF recommending the creation of a new private-company standards board that would focus on "making exceptions and modifications to U.S. GAAP" for private companies, and the creation of a differential accounting framework that would allow FASB to make appropriate and justifiable exceptions and modifications.
At this point it is difficult to predict the steps that will be taken by the FAF in response to the BRP's recommendations. I believe a number of issues will need to be resolved before the FAF can make a decision on how to proceed. For example, the U.S. Securities and Exchange Commission is currently determining whether to incorporate International Financial Reporting Standards into the U.S. public company financial reporting system. The incorporation of IFRS for U.S. public companies would likely impact the role of FASB, which in turn may impact how the needs of private companies and their financial statement users are addressed going forward.
Additionally, if the SEC decides to move in the direction of IFRS, consideration should be given to IFRS for Small to Medium-sized Entities. These standards, while based on full IFRS, are a significantly less burdensome set of requirements for companies that are not considered "publicly accountable." In many countries, private companies are already using IFRS for SMEs as the basis of reporting their financial results. If the SEC does decide on a move in the direction of IFRS for public companies, it may be worthwhile for the management of private companies to discuss with their stakeholders the feasibility of adopting IFRS for SMEs as their financial reporting language.
Other questions need to be answered before a decision on private company reporting is made, such as whether the cost of creating a stand-alone board for private company reporting justifies the benefit and who would bear such a cost; and does the creation of a private company board increase the risk of completely divergent standards for private companies that would create a barrier for a private company's future foray into the public markets?
-- Barry Salzberg
CEO, Deloitte Touche Tohmatsu Limited
The creation of a separate accounting standards board for private and public companies is an issue that is currently being studied by the Financial Accounting Foundation (rather than FASB).
I think most people believe that the accounting for public and private companies should be based on the same principles. However, many people think there should sometimes be differences in the way those principles are applied, or in the level of detail that needs to be provided, by private companies. In order to determine when differences are warranted for private companies, I strongly believe that the profession needs an agreed-upon framework, so that we do not end up with ad hoc standards for private and public companies that diverge over time. To that end, FASB recently completed its initial assessment of the differences in the way that private company financial statements are used by lenders, investors and others. The goal of this assessment is to identify these differentiating factors; the next step is to develop a decision-making framework based on them. We believe an agreed-upon differential framework will reduce the risk that we will end up with a separate set of standards (that are not based on common principles) for private companies.
-- Leslie F. Seidman
The current initiatives of the Blue Ribbon Panel and the FAF seem to be the last, best hope for seeing a change in this area. The profession has been discussing this issue for many decades going back to the Big GAAP/Little GAAP debate. Hopefully, a change will take place in the near future, but there are political issues and funding issues that could create roadblocks.
If a change does occur, I think it is most likely that it will happen in the form of exceptions to GAAP for private companies. GAAP is considered the "gold standard" for accounting standards, so we should not do anything that would negatively affect GAAP. At the same time, GAAP does not always make sense for private companies, especially smaller "mom-and-pop"-type businesses. So finding a way to allow private companies to use standards that are more applicable to their operations and less expensive to administer would be a benefit.
-- John M. Sharbaugh
CEO and executive director, Texas Society of CPAs
There seems to be more support than ever before, especially since public companies will likely be adopting International Financial Reporting Standards. With questions concerning the creation of a governing body overseeing private company standards still unresolved, there is some difference of opinion on what form these standards will take. I think a reasonable resolution would be the adoption of current GAAP with private company exceptions for standards that overly burden these businesses, and future public company standards being adopted or excluded depending on their relevance to private company financial reporting objectives.
I do think private company financial reporting is needed because enough of the current standards are not particularly meaningful to our clients or, more importantly, to the users of the financial statements. Who really understands VIEs and business combinations/goodwill impairment?
-- James Sikich
CEO and managing partner, Sikich LLP
There seems to be a further widening of the gap between what the small companies are required to do vs. public companies. I don't have a crystal ball about how standards and regulations will develop, but my bets are on the idea that the large company standards will continue to get broader, more complex, more internationally focused, and more restrictive on business in the U.S. I think smaller companies will mostly be left alone as these standards develop.
-- Douglas Sleeter
Founder and president, The Sleeter Group Inc.
The overall consensus is that adoption of separate accounting standards for private and public companies would not happen in the near future. In fact, based on current estimates and the SEC roadmap, they would not happen for at least the next five years.
Additionally, the discussion thus far about the possibility of the Securities and Exchange Commission designating a future date for voluntary, or even mandatory, adoption of IFRS has been for U.S. public companies only. That said, many privately held companies adopted provisions of the Sarbanes-Oxley Act, such as the formation of independent audit committees. Many might take similar action regarding IFRS, even if they are not mandated to do so.
-- Brad Smith
President and CEO, Intuit
It is the role of the financial reporting system to deliver information to users of financial statements that is relevant and timely. We are hearing loud and clear that the information for private companies is not relevant and takes critical resources away from the company. I have confident that the FAF will hear the cries of the users and we will see separate standards. The form will be a separate board under the FAF.
-- Arleen Thomas
Senior vice president of management accounting, AICPA
The New Jersey Society of CPAs and I support the Blue Ribbon Panel's recommendations to create a separate board and set up different reporting standards for private companies. However, the creation of a new board seems unlikely. It's looking more and more like we're going to tweak the system that we have today. One possible scenario is a model that follows Generally Accepted Accounting Practices with exceptions for private companies. I share AICPA president and CEO Barry Melancon's vision of switching on or off certain FASB standards as appropriate for private companies, but unfortunately without a new board to make those decisions, it's unclear what body would have their hand on the on-off switch.
-- Ralph Thomas
Executive Director, NJSCPA
I believe there is a consensus that private company reporting is needed. I'm encouraged by the fact that the FAF would consider the recommendations of the Private Company Financial Reporting Task Force. I believe we will see private standards, and my guess is that GAAP will be used as a starting point. I'm undecided on whether or not a new standard-setting board will be developed to oversee this. Personally, I think it makes a lot of sense. However, when dealing with government bureaucracy where different entities feel as though they have insight and control, I'm not sure that control will be easily passed to a new board. And if it isn't, I'm afraid this initiative could lose steam. I hope I'm wrong, though, and it sails through faster than I think.
-- Katie Tolin
Marketing director, Rea & Associates
A single set of accounting standards for all companies is preferable, although there may be opportunities for simplification of disclosures for private companies. Different standards for private and public companies could create confusion among members of the profession, make financial comparisons more difficult, and may lead to negative perception of private companies' financial reporting. Of course, many public companies struggle with the same standards as private companies, and we would all benefit from simplification of accounting.
The Financial Accounting Foundation is considering the recommendations of the Blue Ribbon Panel on Standard Setting for Private Companies, which recommended, among other things, a separate standard-setter (equivalent to FASB) for private companies. We cannot yet tell where this will lead; a more likely approach might involve a standard-setting or advisory body representing private constituents making standard-setting recommendations to FASB.
-- James S. Turley
Global chairman and CEO, Ernst & Young
I do not believe we will see separate accounting standards for private companies in the near future. The industry has been debating this topic for the last 30 years, and I do not see broad enough support for a separate standard in the near future. Further, the Blue Ribbon Panel sponsored by the Financial Accounting Foundation and the American Institute of CPAs has recommended a new board be formed to evaluate immediate and short-term changes now and then re-evaluate in three to five years. While this may result in some modifications for private companies in the short term, I believe it postpones the potential for a separate standard for at least three to five years.
Our financial advisers work exclusively with private companies and individuals to provide solutions for their accounting, tax and wealth management needs and they value these client relationships above all else. Therefore, whether it's one standard or two, our financial advisers would welcome changes if it means a less onerous and costly service that provides enhanced relevance and usefulness to their clients.
-- Enrique M. Vasquez
President and CEO, Genworth Financial Advisers
Many believe that the creation of a separate, dedicated board is a much-needed change, since measurements and disclosures that essentially apply only to large, public companies can be costly for small, private firms to collect and calculate. By lifting the burden imposed by unnecessary financial reporting requirements, these clients can devote more of their resources to managing their core business. And company owners -- the people who rely on private company financial reporting to make critical business decisions -- will appreciate information that is truly relevant to their needs.
However, the overall consensus is that adoption of separate accounting standards for private and public companies will not happen in the near future.
-- Jill Ward
Senior vice president and general manager, Accounting Professionals Division, Intuit Inc.
Differential standards for small companies will most likely be the rule within three years. Note disclosures will be dramatically reduced and esoteric calculations like stock compensation, goodwill and derivative accounting will be limited.
-- Troy Waugh
I think it is probable that there will be some accommodation for private companies. However, while I am sensitive to the different users of financial statements of private public companies, I am concerned that implementation of different accounting standards for each group may be difficult to implement because of differential training needs and the potential for user confusion. I think a more practical approach is to focus on reducing complexity for all companies, as well as looking at differential footnote disclosures, which has precedent in the reporting arena.
-- Jack Weisbaum
CEO, BDO USA
I think it is going to happen. It makes sense. Consumers of public financial statements are very different from private company consumers.
-- Geni Whitehouse
Countess of Communication, Even a Nerd Can Be Heard and Brotemarkle, Davis and Co. LLP
The key word to your question is "near future." I do not believe we will see a quick decision on private company reporting standards. This is a decision that has two conflicting mindsets and the agendas of all parties are so diverse that a well-thought-out strategy is necessary to ensure that the right change is implemented.
-- Sandra L. Wiley
Shareholder, senior consultant and COO, Boomer Consulting
If you look back at the history of differential standards, "near future" seems unlikely. But the possibility is closer than it has ever been before. I had the privilege acting as a facilitator and project manager for the AICPA Private Company Financial Reporting Task Force chaired by Jim Castellano and assisted in drafting the 2005 PCFR report. In that work, I came to see the need for differential standards for private companies and believe that this "true need" will drive the matter forward. When differential standards are enacted, I believe they'll take the form of modified U.S. GAAP (if it happens before convergence), with a decision framework to determine when it's appropriate to make modifications for private companies.
-- Jennifer Lee Wilson
Co-founder and owner, ConvergenceCoaching
Given recent activity on differential standards, I do not believe that it is likely that we will see separate accounting standards for private and public companies in the U.S. in the near future. There are still too many questions that beg a realistic answer such as who will write the standards; how does the profession deal with the public perception that there are already too many standards and which one is "the standard" that should be followed; who defines the difference between private business and public business or large business and small business and who determines the standard for each of them; who will bear the cost to develop and implement a new differential standard, etc. I believe that compliance to any new standard should be required only when the benefits of compliance exceed the costs. There are too many questions and too few answers to make it happen in the near future. However, there are those who will view the questions as insurmountable barriers, and then there are those of us who view a barrier as an opportunity! Chipping away at the barriers will produce results and change in the future but, not in the near future.
-- Donny J. Woods
Immediate past president, NSA
Based on the Blue Ribbon Panel's recommendation to the Financial Accounting Foundation it seems reasonably likely that private companies will be allowed certain exceptions from, and modifications to, GAAP (but not a separately issued set of accounting standards).
-- David Wyle
President and CEO, SurePrep
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