On October 4, the Financial Accounting Foundation (FAF) released their long awaited request for comment on a plan to deal with Private Company Standards. For those who have been eagerly awaiting the next step in establishing differential private company standards after the Blue Ribbon Panel recommendations, the FAF’s request for comment was a bitter disappointment. After eight months of the least transparent process to ever come from the FASB or FAF, the recommendation included three important facets:
- Creation of a “new” Private Company Standards Improvement Council
- Creation of a framework for deciding when differential standards are appropriate
- Leaving final say on all standards with the FASB
This plan falls significantly short of the Blue Ribbon Panel recommendation to have a separate Board with final authority over private company standards. While there are some good aspects to the FAF plan – the creation of a framework for deciding differential standards – I want to point out three major problems I have with the recommendations.
First, this “new” Private Company Standards Improvement Council isn’t new at all. It sounds a lot like the Private Company Financial Reporting Committee (PCFRC) to me. The PCFRC was set up 5 years ago as a last ditch effort to deal with Private Company Standards under the existing FASB standard setting structure. It failed miserably. The FASB refused to act on several PCFRC recommendations to make standards better for private companies. Unlike NASBA and the State Boards that took our last ditch effort to work together and deal with Mobility seriously, the FASB didn’t. As a result, today we have a Mobility framework that while not perfect, works while we are nowhere on private company standards. What are we supposed to do now, trust that the FASB has seen the error of its ways? After forty years of refusing to deal with differential standards I simply do not believe that any change in the FASB attitude will last more than a year and everything will be right back to where we are now.
Second, the FAF seems to have this idea that two separate sets of GAAP – one for Private companies and one for Public companies – is a bad thing and “is not a desired outcome.” I disagree. Two sets of GAAP is exactly the desired outcome. If you think that would cause all sorts of problems you need to take a look at the rest of the world. Most countries, in addition to adopting IFRS, also now have two separate sets of GAAP. Two sets of GAAP not only works, it often works better that one set of GAAP that satisfies no one.
Finally, as a public company employee I think it’s time for the public companies to get a little selfish about the FASB. The Sarbanes-Oxley Act changed the funding for FASB so that it comes from fees paid solely by public companies. As such, I think it only appropriate that the FASB focus on public company issues. We should get something for paying the freight.
Private Company Standards are sure to be a major topic at the AICPA Council meeting this week, so I’ll provide you a further update on this important topic along with other items of interest discussed at the Council meeting in my next blog.