Private company accounting standards: new road or same old path?

• Author: Cheney, Glenn Alan
• Position: FINANCIAL REPORTING

Non-public companies have long bemoaned the need to follow accounting standards that were written for public companies. The financial reports of public and private companies serve different purposes, critics of the single set of standards say, and the standards required of huge publicly traded companies are irrelevant overkill for the reporting purposes of small- and medium-sized private enterprises.

Financial reporting now stands closer than ever to some kind of special provisions for private companies. But the road leading in that direction has diverged at a proposal issued by the Financial Accounting Foundation, the organization that oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board.

The proposal suggested a Private Company Standards Improvement Council (PCSIC) that would identify, propose, deliberate and formally vote on specific exceptions or modifications to U.S. generally accepted accounting principles. Changes approved by two-thirds of the council would be sent to FASB for ratification. The council would have 1 I to 15 members chaired by a member of FASB, and FAF would appoint all members.

Comment Letters Express Disappointment

But comment letters coming from companies and accountants are expressing disappointment that FAF had not followed recommendations made last year by the Blue-Ribbon Panel on Standard Setting for Private Companies (BRP) that was established by FAF, the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy. The panel had recommended an independent board along the lines of FASB and GASB.

"The super-majority view of members is that the current FASB and even a restructured FASB cannot produce the needed exceptions and modifications to GAAP for private company financial reporting," the panel report stated. "Those BRP members believe that throughout its history; the FASB has been geared, in its composition and its processes, very heavily toward public companies, with exceptions and modifications in GAAP for private companies too rare and extremely difficult to achieve, especially in areas other than disclosure--that is recognition, measurement and presentation."

Terri Polley; president and CEO of FAF, points out that the foundation's proposal adopted virtually every recommendation of BRP with the exception of the independent standard setter.

"The trustees believe that creating the PCSIC would represent a more...