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Monday, April 2, 2012

Has FASB’s Recent Efforts Bolstered Trust Among Private Company Constituents?

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 Whatever the belief regarding the Financial Accounting Standards Board’s future private company financial reporting activities, there hasn’t appeared to be anyone disputing that the board has been making every effort to win-over the trust of its private company constituents.

The topic received top billing from FASB Chairman Leslie Seidman in her live March 12 Outlook of the board’s top priorities for 2012. Seidman used words such as “strong commitment to private company financial reporting,” stating that the board made efforts to regularly communicate any changes, including beefing up its internal resources “with expertise in the private company and nonprofit sectors.”

“We’ve also really stepped up our face-to-face interactions with our nonpublic resource groups and stakeholders around the country, and those efforts are really starting to bear fruit,” Seidman said.

By placing FASB’s commitment to private company and nonpublic entities alongside the board’s convergence work with the IASB, the message is unmistakably: we heard you; we changed and are committed and ready.

In fact FASB, far from shrinking back, has been building its private company network--holding webinars for CPE credit, hosting roundtables in different states and even creating a full private company resource center on its website, alongside a slew of other activities.

With all of the effort the FASB has placed on private companies as well as nonprofit organizations, have the concerns of private companies been assuaged?

FAF Decision in May?

The Financial Accounting Foundation, the FASB’s Trustee organization, will decide. The FAF will discuss feedback it has received on its Oct. 4 proposal at an open meeting in May and will be able to vote on a final structure and plan at that point, Seidman said in her speech.

The proposal, issued Oct. 4, 2011, calls for the establishment of a new council with the authority to identify, propose, and vote on specific improvements to US accounting standards for private companies. Changes would be subject to ratification by the FASB. The FAF is in the process of evaluating all of the comments it has received--7069 form letters and 299 direct responses.

In addition to the comment letters, the FAF has held four public round tables held over the last few months and has conducted “other forms of outreach.”

A top U.S. organization, the American Institute of Certified Public Accountants, has been very vocal that it is not in support of FASB retaining veto-power over any of the council’s decisions. A short synopsis of this decade long debate is that the AICPA has said it is time for the U.S. to move on to another plan because keeping FASB at the helm would not bring true, lasting change.

FASB, said senior AICPA management, should focus instead only on public company GAAP and joint convergence work with the International Accounting Standards Board.

When Differences Are Appropriate.

FASB has two broad priorities with respect to private companies. The first, as outlined by Seidman, “is to make sure that we all collectively have a common understanding of when differences are appropriate for private companies versus public companies in U.S. GAAP.”

We have heard a wide range of views, she said, “at one end, the perspective that `significant changes are required,’” and at the other end, the view that “there should be no differences in recognition and measurement.”

To try to build consensus on this core issue, the FASB staff has been developing a decision-making framework that will describe a number of the distinguishing characteristics of private companies and then suggest how those characteristics might affect the various types of accounting and disclosure issues that the board typically addresses.

“The staff has been working with a resource group of private company professionals to vet these ideas, and our plan is to issue an Invitation to Comment of a draft framework in the second quarter so that all of you will have an opportunity to comment,” Seidman said.

Moreover, she highlighted work on the related issue of the definition of a private company—recently added to the board’s project agenda to clarify the definition. It will help establish, said Seidman, which entities have specific attributes that would potentially warrant a difference in reporting.

By Denise Lugo
Staff Correspondent
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