After long deliberation, the Norwalk-based Financial Accounting Foundation established a new council to improve how bookkeeping standards are set for private companies, even as the country”™s largest accountancy group revealed plans to develop new rules for small businesses.
The new Private Company Council created by the Financial Accounting Foundation (FAF) will determine whether exceptions or modifications to existing U.S. Generally Accepted Accounting Principles (GAAP) are necessary to help people get a better view of company financials.
The American Institute of CPAs (AICPA), meanwhile, plans to develop a financial reporting framework to meet the needs of some privately held small and medium-size businesses, promising it will be a less-complicated and less-costly alternative to GAAP.
“One-size U.S. GAAP does not fit all companies, especially smaller, privately held businesses,” Gregory Anton, a Colorado accountant who is AICPA chairman, said in a statement. “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 ”¦ 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.”
FAF CEO Terri Polley signaled her support for AICPA”™s new project.
FAF”™s Private Company Council (PCC) initiative stems in part from a panel formed in 2009 by it, AICPA and the National Association of State Boards of Accountancy. After receiving the panel”™s report in January 2011, FAF gathered input from stakeholders and released a proposal last fall. According to AICPA, 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 plan approved by the trustees strikes an important balance,” Polley said in a statement. “On one hand, the plan recognizes that the needs of public and private company financial statement users, preparers and auditors are not always aligned. But at the same time, the plan ensures comparability of financial reporting among disparate companies by putting in place a system for recognizing differences that will avoid creation of a ”˜two-GAAP”™ system.”
In response to concerns by some, FAF trustees agreed to create a smaller council than originally proposed and to have it meet at least five times a year, a more frequent schedule than first envisioned. PCC meetings will be open to the public, with most to take place at FAF”™s Norwalk offices but up to two meetings annually possibly be held elsewhere. PCC will have nine to 12 members, to include a variety of users, preparers, and practitioners with substantial experience working with private companies. This month, FAF issued a call for nominations for PCC members, who will have a three-year term and may be reappointed for an additional term of two years.
“There is evidence that improved financial reporting helped spur investment at critical moments in our economic history,” Polley wrote in April. “In today”™s world, with unprecedented access to financial information via the Internet, the need for relevant and comparable financial reporting is perhaps greater than ever.”
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