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By Denise Lugo
Dec. 2 — The Financial Accounting Standards Board should consider a tiered standard-setting approach so that small public companies falling under a certain market capitalization range would have alternative reporting requirements, FASB’s small public company advisory committee told the board.
Small public companies, strapped for staff and internal resources, are buckling under the weight of rules and compliance regulation. As a result, some might be forced to go private, committee members said Dec. 1.
“It does become such a burden that you’re just going to lose more and more small companies; they’re going to end up going private—they get orphaned and there’s no sponsorship, a whole segment of the economy gets left out,” said Tim Caffrey, president and portfolio manager of Wellesley, Mass.-based Ty View Capital.
“I wonder whether you could put in minimum market cap or revenue sizes for incremental rules so these guys can focus more on running their business than on compliance and regulation,” Caffrey said.
The comments were part of discussions about financial reporting disclosures and other reporting topics on which FASB sought feedback.
Small public companies must still comply with the same reporting and regulatory requirements although they don’t have the same internal resources as larger public companies, according to the discussions.
Accounting departments face increased costs and pressure from regulation by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the push to use eXtensible Business Reporting Language (XBRL), and rules from the Public Company Accounting Oversight Board, but the benefits of the requirements aren’t apparent, said Gary Bachman, Chief Operating Officer at New York-based Pzena Investment Management, Inc.
The main burdens aren’t coming anymore from FASB provisions. “It’s unfortunately COSO, XBRL and PCAOB—topics that just make my blood boil—those are tough,” Bachman said. “FASB has gotten easier for us because we understand it a lot better—it’s a lot more transparency—it’s the pressure that’s being put on these accounting departments from other areas that have really, really increased costs, increased time constraints,” he said.
Perpetually understaffed, smaller companies find it challenging as more complex reporting pronouncements arise, for which they don’t have the budget to staff researchers to help navigate the issues, the discussions indicated.
Different effective dates for different sized public companies—as is done for private companies—was one suggestion for easing some of the burden.
“Could there be a delay in the effective dates for certain sized public companies?” Doug Reynolds, a partner in Grant Thornton’s accounting principles consulting group, asked. “There is for privates usually, and the big benefit the private companies get is they get to see what everybody did,” he said.
To contact the reporter on this story: Denise Lugo in New York at email@example.com
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