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Private Company Standards - Are We There Yet?
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December 2011


Private Company Standards - 

Are We There Yet?

 By Debbie Adkins MSA, CPA, CFF - Nperspective CFO Partner

 

The latest controversy in the world of accounting is not about a process nor a procedure nor an accounting standard.  It doesn't encompass even a difference of opinion in interpretation of an existing standard.  No, the latest debate centers on whether or not the Financial Accounting Standards Board (FASB), should remain as the current standard-setting board for private companies.   

 

    FASB's history richly began in 1973, when it was designated as the organization to establish accounting standards for public companies.  FASB's rule-setting process is a highly structured and formal one, yet FASB actively seeks input from those whom it serves in nongovernmental entities.  FASB's parent organization is the Financial Accounting Foundation (FAF).   

 

    At the center of the deliberation in favor of a separate board is the American Institute of Certified Public Accountants (the AICPA) who jointly with the Financial Accounting Foundation, established the Blue Ribbon Panel to provide recommendations on how accounting standards of the future could best address private company needs.  For the AICPAs "FAQ: Private Company Reporting," go to this link:  AICPA FAQ   

 

    The report issued by the Blue Ribbon Panel recommends in favor of a new and separate board to work cooperatively with the FASB in setting accounting standards.  However, the new board would possess the authority to establish exceptions for private companies, in contrast to the standards established by FASB for public companies.  For the full report from the Blue Ribbon Panel, go to this link:  Blue Ribbon Panel Report

   

    In October, FAF released a proposed plan to establish the Private Company Standards Improvement Council (PCSIC).      The PCSIC would take the place of the Private Company Financial Reporting Committee and would have the "authority to identify, propose, and vote on specific improvements to US accounting standards for private companies" with the changes "subject to ratification by the Financial Accounting Standards Board (FASB)."      

  

    While the exact size of the PCSIC has not yet been determined, its chairman would be a FASB board member, and the committee would consist of an additional 11 to 15 members.  Members would be appointed by the Trustees, and would include users, preparers and practitioners.  For a full copy of the proposed plan, go to this link:  FAF Plan to Establish PCSIC   

  

    Earlier this year, Daryl Buck was appointed as a FASB Board member.  Daryl, with whom I served on a committee at Financial Executives International, previously served as the CFO of Reasor's Holding Company (a grocery retailer in the private company world).  While there is speculation that Daryl could be the chair of the PCSIC, FAF quickly points out that several FASB board members have served private companies prior to serving as a FASB board member.   

  

    FAF is asking to receive comments not later than January 14, 2012.   In order to aid in the outreach to the public, FAF has also scheduled four roundtables to be held in the first quarter of 2012.  The four cities participating are:  Atlanta, Dallas, Palo Alto, and Boston.  On November 18th, FAF also provided a webcast, "The FAF Plan to Improve Private Company Financial Reporting," of which an archived version can be found here:  FAF Webcast Archive   

  

    Last year, I became a member of FASBs Small Business Advisory Committee (SBAC), which was established in order that FASB could receive more involvement from the small business community.  There are approximately 20 of us on the committee and we meet twice each year in Norwalk with FASB board members.  Also attending our meetings are members of the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the American Institute of Certified Public Accountants, and the Private Company Financial Reporting Committee.   

  

    At our November SBAC meeting, we discussed the FAF Trustee's proposal on nonpublic entities and the decision-making framework for private companies.  FAF President and CEO Teresa Polley also attended our meeting.  For a link to the SBACs page (where you can find meeting handouts and minutes) at the FASB website, go here:  SBAC Members   

  

    It should also be noted that in addition to adding a board member with private company background, in June of this year, FASB also launched a new web portal for nonpublic entities so that private and not-for-profit organizations could easily access FASBs activities in these areas.  Additionally, throughout 2011, FASB has been expanding its outreach to constituents, with the addition of roundtable meetings throughout the United States.

 

    Clearly, any change is going to be difficult.  Further discussion and review of this deliberation is expected to continue at least for many months, as neither FAF nor the FASB have disclosed a timeline to approach a decision.

  

    Here in the United States, there are approximately 15,000 companies registered with the SEC, yet nearly 29 million are nonpublic entities.  The majority of my clients are nonpublic entities.  If you are affiliated with a private company, whether as an owner, chief financial officer, lender, insurer, banker, auditor, venture capitalist, or attorney, I encourage you to send me your thoughts and concerns.  I will be happy to present them to FASB at our next meeting, which occurs May 10, 2012.  My email address is:  [email protected]   

 

Contact us for a free consultation to discuss if there are ways we can help your company succeed. Please contact Janet Watson at (813) 317-3460 or [email protected]. 

 

Did You Know?

Did you know that Nperspective was recently engaged by a multi-generational family business to assist them in taking advantage of the market conditions to dramatically grow? Nperspective is helping them evaluate and upgrade their team as appropriate, build a more efficient infrastructure, including more effective utilization of technology, better financial reporting and analysis, and a more effective team environment.

 

Contact Janet Watson for more information.

Nperspective, LLC provides interim, part-time, and project CFO and Controller services using a flexible engagement model that is dependent on our clients' unique business needs.  Our partners are seasoned CFOs who focus on rolling up their sleeves, are accommodating to client needs and helping create significant value from within their finance organizations.