copyright © 2011 american institute of cpas private company financial reporting historic changes to...
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Copyright © 2011 American Institute of CPAs
Private Company Financial Reporting
Historic Changes to Benefit the Marketplace
Copyright © 2011 American Institute of CPAs
Background on Financial Reporting
15,000 issuers vs. 28.5 million private companies but GAAP driven by public company issues
Small businesses employ more than half of all private sector workers
Private companies and their financial statement users have information needs different from public companies
Copyright © 2011 American Institute of CPAs
U.S. Not Alone
• Canadian Accounting Standards Board decided one size does not fit all and published Accounting Standards for Private Enterprises in Dec. 2009
• UK Accounting Standards Board proposing three-tier system of financial reporting
• Germany has become first major country to have two standard setters
• Council on Accounting for Unlisted Companies formed in Japan to determine if changes should be made to standard-setting process for unlisted companies
• IFRS for SMEs – being used in many areas of the world and being considered in some others
Copyright © 2011 American Institute of CPAs
What U.S. Constituents Say about GAAP for Private Company Financial Reporting
• Too many GAAP-specific requirements not useful or relevant for private companies’ financial statement users
• Greater FASB emphasis on equity/public company investors
• Most important problem: relevance• Increased complexity is burdensome, time-
consuming
Based on 2004 AICPA task force research among constituents with 3,709 responses
Copyright © 2011 American Institute of CPAs
In sum…
Private companies incurring significant unnecessary cost for financial statement preparation and audit, review or compilation services
Private companies are increasingly taking GAAP exceptions
Current system is not attuned to the needs of private company financial statement preparers and users
Copyright © 2011 American Institute of CPAs
U.S. Answer: Blue Ribbon Panel on Private Company Financial Reporting
Address how accounting standards can best meet private company financial statement users’ needs
Determine future of GAAP standard-setting process for private companies
18 panel members: cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors
Copyright © 2011 American Institute of CPAs
Panel’s Major Conclusions
Resolved: A systemic problem exists that needs solving
Supermajority recommendation #1:
• Enhance GAAP for private companies by making significant modifications, where warranted
Supermajority recommendation #2:
• FAF should create a separate private entities accounting standards board
Copyright © 2011 American Institute of CPAs
Reasons for Separate Board Not Subject to FASB Approval
Board consisting of members with private company constituent experience would set different standards
FASB carries out SEC’s statutory responsibility for
accounting standards (investor orientation)
History and current environment demonstrate FASB cannot effectively
balance competing needs of both public company
and private company areas
Copyright © 2011 American Institute of CPAs
Other Key Recommendations
Framework for differential decision criteria
3-5 year sunset review to determine effectiveness of new board
5-7 board members
Copyright © 2011 American Institute of CPAs
Current Status of Initiative
FAF formed working group
Group has been engaged in outreach to advisory groups
and individuals
Action plan to be issued this fall
Now is the time to affect outcome
Copyright © 2011 American Institute of CPAs
How You Can Shape Your Future
Participate – Tell FAF you support panel’s recommendations for:•Differential standards•Separate, autonomous standard-setting body
Copyright © 2011 American Institute of CPAs
Online Letter Assistant for Customized or Original Letters
Copyright © 2011 American Institute of CPAs
aicpa.org/privateGAAP
• Backgrounder• FAQ• Videos• Articles• Press release template
Resources to Help
Send letter to FAF usingonline tool
Gather support from others with education toolkit
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