As a follow up to the September 20th posting “Big GAAP vs. Little GAAP – Where are we at?” the Financing Accounting Foundation’s (FAF) Board of Trustees released its proposed plan last week to address constituents concerns over the standard-setting process for private companies. The proposed plan calls for the establishment of a “Private Company Standards Improvement Council” (PCSIC) to improve the standard-setting process for private companies.
The PCSIC would determine whether exceptions or modifications to GAAP are required to address the needs of users of private company financial statements. The PCSIC, along with the FASB, would develop criteria for determining whether and when exceptions or modifications to GAAP are warranted for private companies. Based upon those criteria, the PCSIC would identify specific standards that require reconsideration and vote on possible exceptions or modifications for private companies. Any proposed exceptions or modifications to GAAP would be subject to ratification by the FASB and undergo thorough due process, including public comment. The PCSIC would be overseen by the FAF’s Board of Trustees.
The PCSIC would be comprised of a chairman and 11 to 15 members. The chairman, who would be selected and appointed by the Trustees, would be a FASB member with substantial experience with and exposure to private companies during his or her career. The 11 to 15 members would be comprised of those who have substantial experience using, preparing, and auditing (and/or compiling and reviewing) private company financial statements.
The proposed plan by the FAF’s Board of Trustees is a far cry from the recommendation of the Blue-Ribbon Panel, which recommended the creation of a separate board for private company accounting standards under the oversight of the FAF and independent of FASB. In deciding on the proposed plan, the Trustees concluded that creating a separate standard-setting board for private companies would lead to the establishment of two separate sets of US accounting standards, which is not a desired outcome. Furthermore, since about six to ten current standards cause most, if not all, of the problems for private companies, the Trustees believe that the PCSIC could prioritize review of these standards, which would address private company concerns more quickly.
The full copy of FAF’s Board of Trustees proposed plan can be found here: “Plan to Establish the Private Company Standards Improvement Council”.
The Trustees seek public comment on the plan until January 14, 2012. The Trustees will make a final decision on the plan following the end of the comment period.
Jonathan Poppel, CPA