Wednesday, October 21, 2009

Different GAAP for private companies?

If you’re one of the people who believe that financial reporting requirements have become increasingly focused on addressing the needs of users of public company financial statements, thereby making financial statement preparation by private companies too burdensome, there just may be some reason to hope for relief.

One of the very interesting things that we heard at AICPA Fall Council was a report from Judy O’Dell, chair of the Private Company Financial Reporting Committee (PCFRC). This committee was formed in January 2007 as a major initiative of the FASB and the AICPA to incorporate into the FASB’s standard-setting process a means to consider the needs of private companies and the users of their financial statements. The PCFRC’s primary objectives are to provide recommendations to the FASB as it sets accounting standards for privately-held enterprises. To date the PCFRC has issued over 30 letters and recommendations to the FASB on such notable issues and FIN 46R, FIN 48.

While the PCFRC’s recommendations have resulted in some temporary postponement of the application of certain requirements to private company financial statements, permanent recognition of important differences in GAAP for private and public companies has not been forthcoming.

Through breakout group discussions members of AICPA Council expressed overwhelming support for U.S. private companies and not-for-profit entities (NPEs) having GAAP recognition, measurement, and disclosure differences, where appropriate, from GAAP applied by U. S. public companies. The further sense of Council members was that the AICPA leadership should explore the idea of having a self-contained, standalone GAAP for use by U.S. private companies and NPEs. In light of this and the recently issued IFRS for SMEs, which private companies can currently avail themselves of in issuing “GAAP” financial statements, I think things just might get interesting in the months to come. Stay tuned.

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