AICPA dedicated Private Company Financial Reporting webpage:

Go to www.aicpa.org and under “Interest Areas” at upper center, click on “Accounting & Auditing” and then link titled aicpa.org/privateGAAP under “Historic Changes on the Horizon for Private Company Financial Reporting” in center of the page.

Full Blue Ribbon Panel Report on Standards-Setting for Private Companies

From above location, click on “Blue Ribbon Panel Final Report” at Quick Links.

FAF webpage on Blue Ribbon Panel:

Go to www.accountingfoundation.org and under “Other Information” at bottom center, click on “Private Company Blue Ribbon Panel”

A panel charged with addressing generally accepted accounting principles (GAAP) for private companies issued its 70-page report communicating the Panel’s recommendations to the Financial Accounting Foundation (FAF, the governing organization of the Financial Accounting Standards Board, FASB) on January 25, 2011.

At the core of the Blue Ribbon Panel’s conclusions is a new standards-setting model as well as a separate private company accounting standards board.

The Blue Ribbon Panel was formed in December 2009 to address the growing dissatisfaction with generally accepted accounting principles among stakeholders of the 29 million privately owned companies in the United States that generally report to a narrower range of financial statement users, such as lenders, venture capitalists and insurers. The 18 members of the Panel represent a cross section of financial reporting constituencies, including lenders, investors and owners, as well as financial statement preparers and auditors and is sponsored by the FAF, the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA).

Recommended Standards-Setting Model

The Panel recommends a model using U.S. GAAP (the FASB Accounting Standards Codification), with the introduction of exceptions and modifications that meet the needs of users of private company financial statements in a cost effective manner. These modifications would occur, as necessary, in the standards-setting process, and such modifications could result in differences in measurement, disclosure, presentation and recognition for private companies. In evaluating potential differences and exceptions, the standard-setting process would include reference to a differential framework for evaluating whether differences for private company GAAP are warranted.

Among the standards private company executives would most like to see modified or eliminated are those related to stock options valuation, derivatives, consolidation rules, and uncertain tax positions

Separate Private Company Accounting Standards Board

The mission for this separate standards-setting board would be to establish appropriate exceptions and modifications to GAAP for private companies. Tight coordination with FASB would be required, and either the new board or FASB could promulgate differences depending on the circumstances of the topic, but the ultimate authority to approve the exceptions and modifications should reside with the new board.

The Panel also recommends that the new board be subject to a comprehensive review of its effectiveness after three-to-five years.

Other Changes Affecting Private Companies

In recent years, the FASB has made changes designed to improve its standards-setting activities with regard to private companies notwithstanding the activities or recommendations of the Blue Ribbon Panel. Some of the key changes involve augmenting FASB staff dedicated to private company standards, appointing an assistant director and a project manager responsible for strategic and technical oversight for private company issues, and the reassignment of three other staff members to the private company team to address issues with international standards.

Most recently (In January 2011), Daryl Buck, a member of the Blue Ribbon Panel, was appointed a member of the FASB for a term beginning in February 2011. This likely represents the first time in its over 30-year history that a FASB member has come from the private company constituency.

Next Steps

The FAF will consider the Blue Ribbon report and proposals at its February 15th meeting and thereafter release proposals for public comment.

We encourage you to share any thoughts you have with us about private company financial reporting, whether from a financial statement preparer or user perspective, for our consideration in making our formal comments to the standards-setters, once solicited, or consider submitting your own comments directly.

If you have questions or wish to discuss this topic with us further, please contact Kay Filler, CPA.

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