Private Company Reporting Framework is Gaining Some Momentum
posted Aug 29, 2012 by Norman LeBlanc, CPA
Changes may be coming for private companies preparing their financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). These changes will hopefully ease some of the burdens placed on private companies when complying with certain aspects of GAAP.
During May 2011, the Financial Accounting Standards Board (FASB) completed an assessment on how the needs of private company financial statement users differ from public company users, as well as a cost/benefit analysis of financial statement preparation costs amongst private companies. The result of the assessment identified six factors that differentiate the financial reporting considerations of private companies and public companies, they include:
- Types and number of financial statement users
- Access to management
- Investment strategies
- Ownership and capital structures
- Accounting resources
- Learning about new financial reporting guidance
As a result, the FASB parent organization created the Private Company Council (PCC). The PCC was tasked to identify, deliberate, and vote on proposed changes related to a proposed private company reporting framework, which will be subject to endorsement by FASB. The framework is designed to assist the PCC as it determines whether modifications or exceptions to existing GAAP are needed for private companies. FASB and the PCC must agree jointly on the proposed decision-making framework before it is implemented.
The draft of the PCC reporting framework discusses five areas where there may be reporting differences between public and private companies. Those areas include:
- Recognition and measurement
- Display (presentation)
- Effective date
- Transition method
The framework is not intended to be entirely new, but it is intended to identify the different information needs of users of public company financial statements and the users of private company financial statements. In conjunction, it will identify opportunities to reduce the complexity and costs of preparing private company financial statements in accordance with GAAP.
On July 31, 2012, FASB invited stakeholders to comment on the recommendations made by the PCC which are part of the discussion paper titled “Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies”. The comment period ends October 31, 2012.
It’s going to take some time for the PCC to filter through the comments and come up with their final recommendations, but it would appear that they, along with the FASB, are certainly trying to make it a little easier for private companies to prepare their financial statements. We’ll be following this closely and will post updates as they become available. Should you need any assistance with any of your financial reporting and compliance needs, please do not hesitate to contact us.