Private Company GAAP

Date01 November 2013
AuthorOscar J. Holzmann
Published date01 November 2013
© 2013 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.21911
Private Company GAAP
Oscar J. Holzmann
An earlier edition of this
column1 presented a summary
background and content of the
Financial Accounting Foun-
dation’s (FAF)2 2011 Plan to
Establish the Private Company
Standards Improvement Coun-
cil3 (Plan), which proposed the
creation of a new accounting
and reporting rule-making
body to deal with a continuing
issue: whether a set of account-
ing standards optimized for the
needs of publicly held compa-
nies is also optimal for private
companies. This is not just a
matter of intellectual concern;
it has real practical implica-
tions since it is accepted that
for smaller private companies
the costs of complying with
generally accepted account-
ing principles (GAAP) often
exceeds the benefits of compli-
ance. Given that GAAP issu-
ance has been primarily occur-
ring with a focus on public
company reporting to the U.S.
Securities and Exchange Com-
mission (SEC), and since it is
the primary responsibility of
the Financial Accounting Stan-
dards Board (FASB), a related
and major controversial issue
has been what should be the
FASB’s role (if any) in provid-
ing guidance to the nonpublic
This issue of the FASB
column summarizes the devel-
opments concerning GAAP for
private companies to date since
the FAF issued its Plan in 2011.
The summary covers private
company–related institutional
developments in the structure
for issuing and/or modifying
GAAP as well as mentioning the
first efforts under the new struc-
ture to actually modify GAAP.
The controversies concern-
ing accounting and financial
reporting for public companies
(“Big GAAP”) versus private
companies (“Little GAAP”) go
back to the days of the Account-
ing Principles Board (APB)4 and
before. At this stage of the game,
there’s little doubt surrounding
the merits of private companies’
concerns about having to live
with GAAP targeted to public
companies. For example, an
FASB staff assessment com-
pleted in July 2011 identified the
following significant differential
factors in the financial reporting
considerations of private com-
pared to public companies:5
Types and number of financial statement users.
Access to management. Investment strategies of equity investors.
Ownership and capital structures.
Accounting resources. Learning about new finan- cial reporting guidance.
These differential factors
were identified by assessing
how and why the needs of users
of private company financial
statements may differ from
those who use public company
financial statements.6 These fac-
tors have recently become a key
element in developing the frame-
work being used by the FASB
and the PCC to make decisions
about private companies’ use of
GAAP alternatives in account-
ing and financial reporting.
An important threshold in
the Big GAAP/Little GAAP
controversy was reached in
December 2009 when the
American Institute of Certified
Public Accountants (AICPA),
the FAF, and the National
Association of State Boards
of Accountancy (NASBA)
established a “blue-ribbon”
panel charged with address-
ing how accounting standards
could best meet the needs of
users of U.S. private com-
pany financial statements.

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