Next Monday (April 12) is the first meeting of the Blue Ribbon Panel on Standard Setting for Private Companies.  This has the potential to be a very wide-ranging and interesting continuation of a very long-standing discussion about GAAP for non-public entities.

As I understand it, many years ago, the debate began and was labeled the “big GAAP-little GAAP” debate, namely should smaller and/or non-public companies be allowed to sidestep some of the complexity of GAAP that is designed for larger and more complex entities?  The present manifestation of the debate will undoubtedly be shaped by the recent (July 9, 2009) publication by the International Accounting Standards Board of IFRS for small and medium-sized entities (IFRS for SMEs), combined with the fact that under AICPA rules, IFRS for SMEs are considered generally accepted accounting principles.

These recent developments mean that at this very moment, private companies in the U.S. actually have the option to use either IFRS for SMEs or U.S. GAAP for their financial reporting.  Of course, there are practical constraints, in that companies would still need to find someone to audit their financials and would need their capital providers to be willing to accept IFRS-based statements.  However, one of the more significant barriers to a reportedly simpler set of accounting principles has been removed.

It will be very interesting to follow the work of the Blue Ribbon panel and to see what directions emerge for financial reporting for non-public companies.  As additional resources, Edith Orenstein has a good summary and links to additional documents about the panel in her FEI Financial Reporting Blog, including the panel membership, meeting schedule, and the agenda for the first meeting.  The panel has its own webpage as well.  Also, Andy Thrower has a piece about the “big GAAP/little GAAP” question and a framework for reporting by private companies in the March 2010 issue of Financial Executive magazine (p. 14).

Of particular interest to me is the question of who will set standards for non-public entities going forward.  At the extreme, if all private companies were to elect to adopt IFRS for SMEs, the FASB effectively would become the standard setter for public companies only (and perhaps not-for-profit entities).  This would be a very significant depature from the status quo, and would likely have impacts on the FASB, on U.S. GAAP, and on the landscape for investors.  Another interesting question under this scenario is how investors would make investment decisions that required comparisons of public and private companies that would be using two different sets of accounting principles.

As I said, the discussion should be interesting to watch.  Stay tuned!