World class GAAP should have private company alternatives.

Author:Thrower, Andy
Position:PRIVATE COMPANY - Generally accepted accounting principles - Conference news
 
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FASB began a broad-based effort to consider private company "alternatives" within existing GAAP and in-process standards following a Blue Ribbon Panel Report on private company reporting in 2010, and the ensuing formation of FASB's Private Company Council (PCC) in 2012.

The PCC works closely with FASB staff and the FASB board, with board member Daryl Buck serving as liaison to the PCC. Before joining the FASB board, Buck was SVP and CFO of Reasor's Holding Company, and is a former chair of Financial Executive International's (FEI) Committee on Private Company Standards (CPC-S).

The PCC makes recommendations to the FASB board, that, if endorsed, are issued as Accounting Standards Updates (ASUs). Included among the experts on the PCC is George Beckwith, Controller of National Gypsum, who also served as chairman of FEI's CPC-S.

As reported by CFO.com, comments challenging the wisdom of issuing a series of private company GAAP 'alternatives' were made by Public Company Accounting Oversight Board (PCAOB) Director of Research and Analysis Greg Jonas, at a conference on accounting sponsored by Standard & Poor's in the fall of 2014.

A decade or so ago, having only worked in the public company arena, I would have fully agreed with Greg. One's experience drives one's perspective. However, hundreds of conversations later with private company interests, and with a couple of dozen private financing deals under my belt, it is very clear to me that private company investment and credit decision-makers use different and more widespread criteria in their decision-making than do either public company equity analysts seeking to determine values of public company stocks, or large credit rating agencies trying to rank credit worthiness by use of comparables available only from the controlled-release environment of public companies.

The charge reportedly made by Greg at the S&P conference--that the PCC's work will lead to private company GAAP and that private GAAP is a "world class bad idea" is hyperbole--something that I was equally guilty of before I moved to the private company world. We already have the International Accounting Standards Board's International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs), and the AlCPA's Financial Reporting Framework (FRF) for SMEs. Neither is in wide use in this country, and many private lenders have never heard of them.

Although these frameworks show the IASB and AICPA working to be...

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