FASB Seeks Input on Private Company Decision-Making Framework
Norwalk, CT, July 31, 2012—The Financial Accounting Standards
Board (FASB) today issued an Invitation
to Comment on a staff paper that outlines an approach for
deciding whether and when to modify U.S. Generally Accepted Accounting
Principles (GAAP) for private companies. The paper, Private Company
Decision-Making Framework: A Framework for Evaluating Financial Accounting and
Reporting Guidance for Private Companies, contains initial FASB staff
recommendations for criteria to determine whether and in what circumstances it
is appropriate to adjust financial reporting requirements for private companies
following U.S. GAAP. Stakeholders are asked to provide input on the document by
October 31, 2012.
The decision-making framework would help the FASB and
the newly created Private Company Council (PCC) identify the unique needs of
users of private company financial statements as well as opportunities to reduce
the complexity and cost of preparing private company financial statements in
accordance with U.S. GAAP.
Many private companies issue financial
statements in accordance with U.S. GAAP for the benefit of their investors and
lenders. The FASB is the private-sector, independent, organization that sets
U.S. GAAP standards used by private companies, public companies, and
not-for-profit organizations.
Before it is implemented, the proposed
decision-making framework must be agreed upon jointly by the FASB and the PCC.
The PCC
is a new body created by the Financial Accounting Foundation (FAF) to identify
issues in U.S. GAAP related to private companies and advise the FASB on ongoing
private company issues. Working with the FASB, and guided by the framework, the
PCC will determine whether exceptions or modifications to existing
nongovernmental U.S. GAAP are necessary to address the needs of users of private
company financial statements. The PCC then will identify, deliberate, and vote
on any proposed changes, which will be subject to endorsement by the FASB and
submitted for public comment before being incorporated into GAAP.
The
recommendations contained in the Invitation to Comment reflect what stakeholders
told the FASB staff about their experiences using, preparing, auditing,
reviewing, and compiling private company financial statements. Individuals and
organizations are asked to provide comments on six significant factors the staff
identified that differentiate the financial reporting considerations of private
companies, specifically:
Types and number of financial statement users
Access to management
Investment strategies
Ownership and capital structures
Accounting resources
Learning about new financial reporting guidance.
The
Invitation to Comment also seeks stakeholder feedback on five areas where
financial accounting and reporting guidance might differ for private and public
companies:
Recognition and measurement
Disclosures
Display (presentation)
Effective dates
Transition methods.
“The development of a sound decision-making
framework is essential to our ongoing efforts to address the unique needs of
private company stakeholders while maintaining the high quality of U.S. GAAP,”
stated FASB Chairman Leslie F. Seidman. “We anticipate that the guidance
designed to identify cost-effective alternatives for private companies also will
benefit some of the FASB’s public and not-for-profit standard-setting
activities.”
The Board has chosen not to deliberate the topics in the
Invitation to Comment until stakeholders have provided input on the staff’s
preliminary recommendations, and the chairman and all members of the PCC have
been appointed. At that time, the Board and the PCC will jointly reach
tentative conclusions about the criteria to be included in the framework.
The Invitation to Comment is available at www.fasb.org.