US Accountants Back Creation of Private Company Council
Supporting the Financial Accounting Foundation’s (FAF) decision to make process and structural improvements by creating the Private Company Council, the American Institute of CPAs (AICPA) has asserted the need for financial reporting framework for smaller businesses.
The Private Company Council is based upon the body proposed last October by the FAF to set differences in U.S. generally accepted accounting principles (U.S. GAAP), where appropriate, for privately held companies.
“With the news announced today by the FAF, we recognize and appreciate that the FAF has taken solid steps in the right direction regarding the Private Company Council. The AICPA is encouraged by this approach and awaits more of the details of the FAF decision. We look forward to continuing to work together to effect meaningful changes in U.S. GAAP for private companies and the users of their financial statements,” said Barry C. Melancon, president and CEO of the American Institute of CPAs.
The action the FAF has taken to date stems in large measure from the foundational work conducted by a blue ribbon panel formed in 2009 by the AICPA, the FAF and the National Association of State Boards of Accountancy, which included lenders, investors and owners as well as preparers, auditors and regulators. After receiving the panel’s report in January 2011, the FAF gathered input from stakeholders, and released a proposal last fall. The vast majority of stakeholders agreed with the panel that action must be taken to make private company financial statements more relevant, less complex, and cost-beneficial.
The AICPA also announced plans to develop an “other comprehensive basis of accounting” (OCBOA) financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises (SMEs), as well as the users of the financial statements of these entities. The SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to U.S. GAAP for SMEs that do not need U.S. GAAP financial statements.
“In addition to advocating for appropriate differences in U.S. GAAP to recognize the unique circumstances of the private company environment, we will be launching a complementary OCBOA financial reporting framework. The enhanced and simplified financial reporting framework will be a cost beneficial solution for smaller privately held entities that do not need to comply with U.S. GAAP,” said Melancon.
“One-size U.S. GAAP does not fit all companies, especially smaller privately held businesses,” said Gregory J. Anton, chairman of the board of directors of the AICPA.
“We recognize that the FAF has moved in the right direction and the AICPA will continue to be fully engaged with the FAF and the Private Company Council. While doing so, we will also use our resources and expertise to develop an enhanced OCBOA financial reporting framework that is objective, relevant and responsive to the concerns of preparers and users of small and medium private company financial statements where GAAP financial statements are not required.”
“We welcome the AICPA’s support for the Private Company Council and for our efforts to improve the standard-setting process for private companies. We also believe that the AICPA’s plan to develop a financial reporting framework for smaller private entities, which would be used as a form of OCBOA reporting where appropriate, is an important and complementary undertaking. Taken together, these actions demonstrate the commitment of both organizations to the private company financial reporting constituency,” said Terri Polley, FAF President and CEO.