Blue Ribbon Panel to Weigh Launching
Standard Setter for U.S. Private Companies

NEW YORK—Members of a blue ribbon panel formed to address private company financial reporting in the Unites States said April 12 the group would decide whether to set up a new and separate standard-setting body that would address and write accounting standards for the private sector.
The blue ribbon panel meeting, which took place at the American Institute of Certified Public Accountants’ offices, was its first since the panel was jointly created Dec. 17, 2009, by the Financial Accounting Foundation (overseers of the Financial Accounting Standards Board), AICPA, and the National Association of State Boards of Accountancy (NASBA) (6 APPR 18, 1/8/10).
Its aim is to comprehensively review whether there should be differing reporting standards for private companies and public companies.
Heads of the three standard-setting bodies said there was a new urgency in the private sector environment for a concerted response. “The blue ribbon panel will follow the process that produced the FASB to begin with, where there was—at a policy level—a look as to what is the right make up of accounting standard setting in the U.S.,” said AICPA President and Chief Executive Officer Barry Melancon.
Currently, FASB is the Securities and Exchange Committee-designated body to produce generally accepted accounting principles, which are mandatory for public companies.
Private companies, however, currently have a choice of three accounting standards: GAAP, international financial reporting standards (IFRS), and IFRS for small and medium-sized enterprises (SMEs).
Melancon said there is currently a common belief among AICPA constituents that the financial reporting issues of the 20-plus million private enterprises are not currently being addressed, including relevancy and cost benefits.
He stated that the Private Company Financial Reporting Committee (PCFRC), a subcommittee launched jointly by AICPA and FASB to address private company financial reporting issues, made recommendations for differences in accounting guidance for private companies, and “those differences have not come about,” adding to “further frustration among private companies.”
AICPA Majority Supports Different Treatment
Melancon further stated that governing council members of AICPA were asked whether they would support differences both in the recognition, measurement, and disclosures for private companies, and over 80 percent strongly supported the notion “that [it is] time for differences and a difference in process to produce a different standard setting approach in general.”
“It’s an issue that has been around for decades but it is at a feverish pitch from a standpoint of opportunity and frustration. … I think this blue ribbon panel has the potential to look at this from [a new area] and not be weighed down by focusing on a particular technical standard,” Melancon said.
Rick Anderson, chairman of Moss Adams LLP and chairman of the panel, told BNA that a new standard-setting body is one of the overarching issues being weighed.
Anderson said that the difference and importance of the blue ribbon panel stemmed from the joint cooperation of the top boards in coming together opposed to individualized actions to address private company concerns.
He said the 18-member blue ribbon panel is a significant creation because it brings together the two most influential standard-setting bodies—FAF and AICPA—and because of the diversity of the makeup of the committee—users, creditors, lenders, owners of businesses, and preparers.
Standing on Cusp of Change
The panel is not the first to address the issue of whether there should be different reporting standards for private companies and public companies.
According to a Grant Thornton report distributed for the meeting, the issue has been heavily debated at the Private Companies Practice Section (PCPS) of AICPA and the Private Companies Committee at the Financial Executives International.
In addition, PCPS issued a qualitative research study, Standards Overload: Problems and Solutions, in June 1995, and FASB issued Invitation to Comment, Enhancing the Financial Accounting and Reporting Standard-Setting Process for Private Companies, in June 2006, the report said.
FASB’s invitation to comment led to the creation of the PCFRC, which has taken the lead in putting the issue of private companies back on the agenda. In a letter to the FAF dated Nov. 19, 2009, the PCFRC recommended that the FAF consider private company accounting issues in the context of the mission of FASB. The blue ribbon panel was announced less than a month later.
In general, there was an overtone from some panel members that FASB has not effectively responded to the private sector needs. PCFRC Chairwoman Judith O’Dell said though the group was able to get some disclosure relief from FASB in the realm of FASB Statement No. 48, and additionally for not-for-profit enterprise, not “a lot of traction was made for other standards.”
Moreover, FAF President Terri Polley said a listening tour held by the FAF trustees last year yielded feedback on how FASB and the Governmental Accounting Standards Boards were doing their jobs and “we heard clearly that the issues of private companies are not getting the attention that they should.”
Polley stated that a new more “activist board” of trustees has become more engaged in the standard-setting process itself. “We’re standing on the cusp of significant changes in the financial reporting systems in the U.S. both as a result of the financial crisis and possible regulatory changes as well as just what’s going on internationally,” said Polley.
“There’s going to be changes for sure in the standard-setting process over the next couple of years, based on some of the international issues, based on some of the regulatory reforms and it seems like an appropriate time to address the issue of private company reporting,” she said.
By Denise Lugo