Privatecompany financial reporting.

• Author: Chavez, David

The AICPA, Financial Accounting Foundation and the National Association of State Boards of Accountancy have set out to address an issue that seems to be the accounting white elephant in the room. Financial statement preparers and their CPAs for private companies seem to be struggling with keeping pace with new and more complex accounting standards that were designed to address issues brought out by public company reporting.

A Blue-Ribbon Panel on Private Company reporting was formed to provide recommendations on the future of standard setting for our nation's more than 28 million private companies and small businesses. The emphasis of this panel was to address how accounting standards could best meet the needs of the users of private company financial statements.

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This issue has been around for several years, but has recently gained momentum due to the recent activity of FASB and the influx of other influences, such as International Financial Reporting Standards.

The Blue-Ribbon Panel is made up of 18 members from various industries, public accounting and other backgrounds, and focused on three primary consideration:

* US GAAP with exclusion for private companies--with enhancements

* US GAAP: baseline GAAP with public company Add-ons

* Separate, standalone GAAP based on current US GAAP

Report by the Blue-Ribbon Panel

The panel's report, released to the Financial Accounting Foundation trustees in January 2011, stated that there were "urgent and growing" systemic issues that need to be addressed. These issues related to the standards put forth by US GAAP and to the system in which U.S. accounting standards were being set.

According to the panel, the system was not set up in such a manner that it could do a sufficient job of:

* Understanding the information that users of private company financial statements consider decision-useful and how those information needs differ from those of users of public company financial statements.

* Weighing the costs and benefits of using GAAP in private company financial reporting.

The panel further indicated that these issues have caused a "lack of relevance" of a number of accounting .standards for many users of these financial statements. The level of complexity in US GAAP also concerns preparers of these financial statements and their CPAs.

The panel went, so far as to indicate that many public businesses are incurring unnecessary cost related to financial statement preparation...