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We can all agree the accurate and comprehensive financial reporting is integral for all businesses.  However, over the past decade, we have witnessed Enron’s corporate mismanagement, a financial banking crisis, and a real estate market collapse due to overly aggressive lending practices.  With every financial disaster, you can be sure that a wave of new financial and reporting standards will be forthcoming.  As a result, the accounting standards board has been working overtime establishing these new standards.  Staying current on all of the changes is no easy task.

Most of the new standards appear to have been created based on the actions of a few high-profile, publicly traded companies.  Unfortunately, the private company sector has been caught in the net of these reporting standards.  Complying with these standards has added more, but not necessarily helpful, financial disclosures and has also increased costs associated with financial reporting.  With the gap (or is its GAAP?) between the financial reporting needs of publicly traded companies and those of private companies continuing to grow, something needed to be done.

In 2009, a blue-ribbon panel was established by the AICPA, the Financial Accounting Foundation (FAF) – (the organization which oversees the Financial Accounting Standards Board (FASB)), and the National Association of State Boards of Accountancy to address how accounting standards can best be designed to meet the needs of users of private company financial statements.  In its report issued earlier this year, the panel determined that there were systemic issues which need to be addressed within the current system.  As designed, the current standard system does not adequately consider the fact that decision-making information differs between private companies and public companies, and the system also does not appropriately weigh the costs and benefits of applying GAAP to private companies.   Consequently, the panel recommended that a separate private company standards board be established to ensure that appropriate exceptions and modifications are made to both existing and future standards.  Finally, help was on the way!

One small problem.  Earlier this month, the FAF determined, rather than having a separate standard setting board for private companies, that the creation of a Private Company Standards Improvement Council (PCSIC) would be an acceptable compromise.  The PCSIC would be able to identify, propose and vote on improvements to standards for private companies, but any recommendations would still need to be approved and ratified by the FASB.  In essence, the PCSIC would simply act in an advisory capacity and have no authority over establishing financial and reporting standards for private companies.

But the fight is not over, as the AICPA is undertaking a significant letter writing campaign for members to express their disappointment over the FAF ignoring the blue ribbon panel’s suggestion to establish an autonomous standard setting board for private companies.  Whether there will ever be a separate private company board is ultimately to be determined, but any change to the current standard setting structure appears to be several years away.