Should privately held companies get their own accounting standards board?

That was one of the questions debated by the Blue Ribbon Panel on Standard Setting for Private Companies during its third meeting on Monday in Chicago. The panel, which includes members of the American Institute of CPAs, the Financial Accounting Foundation, the National Association of State Boards of Accountancy and representatives from various industries, described a number of issues holding back private company financial reporting.

One of them is the uncertain state of the convergence effort between the Financial Accounting Standards Board and the International Accounting Standards Board, and where that leaves private company accounting standards. While the IASB has issued a set of International Financial Reporting Standards for Small and Medium-sized Entities, few companies in the U.S. are actually using them, as IFRS has not yet been approved by the Securities and Exchange Commission for use by public companies. Indeed, private companies often feel like a secondary class of citizen when it comes to accounting standards, as the SEC and the accounting boards are primarily concerned with publicly traded companies and the businesses that deal with them.

That left some members of the panel wondering whether private companies should get their own set of standards, and not just a mini-GAAP, given the mindset of FASB.

“The board has the attitude that one size has to fit all,” said Judy O’Dell, who chairs the Private Company Financial Reporting Committee, which operates under the auspices of the AICPA and FASB. “The goal of this group should be to raise private company financial reporting capabilities, not to dumb them down.”

Panel chairman Rick Anderson emphasized the need for consistency and relevance.

Another member of the panel noted, “We plead, we beg with the board, but they have a conceptual framework and they don’t apply it to private companies.”

While changes are expected in the make-up of the members of the Financial Accounting Foundation board, which oversees FASB and the Governmental Accounting Standards Board, the board membership is still expected to largely comprise people who have experience with public companies. The panel members debated several scenarios under which a separate board might be created just to address private company standards.

However, AICPA president and CEO Barry Melancon wondered if this would be feasible. “I’m a huge advocate of addressing the private company issue, but we also have a public company problem,” he said. He noted that FASB has come under more pressure from a public company perspective than at any time in its entire history, and that FASB has already been reconstituted to become more nimble in addressing various accounting issues. He believes it would be a mistake to undo that work.

One possibility he noted would be for FASB to continue to write the standards and for another board devoted to private companies to look at the outcomes. The separate private company board, like GASB for government accounting, would be able to make modifications for private companies of the standards that FASB sets.

But then again there’s the whole question of what happens when and if the SEC approves IFRS for incorporation into the U.S. financial reporting framework. Any changes in GAAP for private companies would then need to be reconciled with IFRS for SMEs.

If there’s one thing that never changes about accounting standard-setting, it’s how hard it is to set any standards that last.