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The American Institute of Certified Public Accountants (AICPA) has requested the United States Financial Accounting Foundation (FAF) to take heed of the many letters it has received demanding differential financial reporting standards for private companies and a separate independent board to oversee those standards.
The AICPA points out that there are approximately 28m privately-held US companies, accounting for more than 50% of the economy, and that, for almost 40 years, their pleas to set standards for financial reporting that are more relevant have too often have been ignored. Many believe that accounting standards have been and are driven by issues affecting public companies, and there is an increasing lack of relevance of those standards for private companies and their financial statement users.
“99% of the letters from the privately held company constituency demanded that the FAF create differential standards for privately-held companies,” said Barry Melancon, AICPA president. “We’ve studied this problem for far too long. Over the years, some changes have been made. But the Blue Ribbon Panel reported that they were insufficient.”
In 2009 the AICPA, the FAF and the National Association of State Boards of Accountancy created the Blue Ribbon Panel on Private Company Financial Reporting to explore the changes necessary to best meet the needs of US users of private company financial statements. In January this year, it presented its report to the FAF, and overwhelmingly called for the creation of an independent board, not subject to veto power by the Financial Accounting Standards Board (FASB), to create standards for privately-held enterprises.
Its members believed that the system has not done a sufficient job of understanding the information that users of private company financial statements consider decision-useful, and how those information needs differ from those of users of public company financial statements; and of weighing the costs and benefits of Generally Accepted Accounting Principles (GAAP) for use in private company financial reporting.
It added that those issues have caused a lack of relevance of a number of accounting standards for many users of private company financial statements and an overall level of complexity in US GAAP that continues to concern preparers of private company financial statements and their CPA practitioners.
“While the AICPA applauds the recent actions of the FASB to provide relief to private companies, the FAF has yet to agree to a separate board,” added Paul Stahlin, AICPA chairman. “Now is the time for the FAF to take the bold step of creating a separate board to set relevant standards that privately-held companies sorely need. We call upon more CPAs and business leaders within the privately-held company constituency to push the FAF to make these changes.”
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