Opinions mixed on FASB framework for private company financial reporting.

Author:Cheney, Glenn Alan
Position:FINANCIAL REPORTING - Financial Accounting Standards Board

The comments are in on the Financial Accounting Standards Board's suggested decision-making framework for the development of accounting and reporting standards for nonpublic companies. The 51 comments, mostly coming from those representing accountants or lenders, were generally satisfied with the proffered process, but they raised several questions.

The FASB framework, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies, outlines the issues that FASB staff is recommending its newly-formed Private Company Council (PCC) consider as it sets forth down the tortuous trail toward simpler rules for companies that don't normally need to report to diverse investors, the U.S. Securities and Exchange Commission and a vast variety of stakeholders.

The framework identifies some of the differential factors between private and public companies that could allow private companies to provide relevant information in a cost-effective manner, meeting generally accepted accounting principles without much of the detail that applies only to large, public companies. It found five main areas where guidance might vary: recognition and measurement, disclosure, presentation, effective date and transition method.

Former FASB Board Member Edward W. Trott wrote a comment letter stating in no uncertain terms that the framework would not accomplish the objective of identifying where modified GAAP would be appropriate for general purpose external financial reporting.

"Financial reports prepared with modified standards where the modification is based on the ability of [a] User to obtain information directly from the reporting entity because of their access to the entity's management, and the ability of a User to agree to exclude information from financial reports based on the Users' existing knowledge about the reporting entity are not U.S. GAAP statements" Trott wrote.

"Financial reports using such modified standards are non-GAAP or special purpose reports and should be identified as such," he added.

James Catty, writing for the International Association of Consultants, Valuators and Analysts--most of whose members are certified public accountants (CPAs) involved in valuation--generally advocated minimal guidance and restriction. He opined that liquidity--the facility of selling shares on a market--should be added as a defining characteristic of a private company.

In addition, Catty disagreed...

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