Is a separate FASB for private company GAAP coming?

• Author: Beckwith, George
• Position: Financial Accounting Standards Board

The Blue Ribbon Panel on Standard Setting for Private Companies has reviewed a number of models for the future of private company accounting standards. Some of the options make few changes to today's standard-setting process and leave United States generally accepted accounting principles for private companies hostage to the standard-setting process for public companies.

However, some models pave the way toward a new set of GAAP, designed with private company statement users in mind and could result in a new standard-setting body to develop those standards.

Considering changes of this magnitude can only come about due to a lot of frustration in the private company community. However, it isn't only the private companies that have seen changes. Why would private companies be considered for separate treatment?

To answer this, we have to consider the changes that have created some of the frustration. Convergence with International Financial Reporting Standards has certainly accelerated the pace of change in accounting standards, but other changes over the last five to 10 years have been forced on private companies that have added to the overall level of frustration.

Consider the changes after the dotcom debacle. Enron Corp. and WorldCom International fraud resulted in the Sarbanes-Oxley Act of 2002. While the act had no direct impact on private companies, it has changed the way auditors view a company's risk and how auditors work with their clients. That may be for the better overall, but it wasn't a positive change to all working relationships.

Convergence of U.S. GAAP with IFRS has been planned and coming for a long time. More recently, the heavy lifting has been showing up in exposure drafts. Some of the changes are not very significant, but others are changing the historical perspective of financial statements.

Fundamental accrual accounting concepts are being swept away as fair value principles replace matching of revenues and expense with market values of assets and liabilities. Audit teams will need to be schooled more on valuation techniques than analytical auditing. The changes are profound to everyone who understood theories and have based their knowledge of accounting rules on those theories.

More recently, the financial crisis of the past two-plus years has resulted in more turmoil in the accounting standards world. Proposals to remove the independence of the Financial Accounting Standards Board or to have a governmental agency...