Private companies have a once in a lifetime opportunity to express their concerns to standards setters that private company financial reporting is far different from publicly traded ones – and as a result financial reporting standards should be created and governed by an independent private company board.
Accounting professionals, including those at Rea & Associates, believe the current standard-setting process does not adequately take into account the needs of the private company sector. We feel there is an increasing lack of relevance of accounting standards for private companies and their financial statement users.
Current private company financial reporting includes requirements that are complex, time-consuming and costly, that result in too much irrelevant information to its users. Accounting professionals believe having appropriate differences will lead to more relevant financial statements that provide decision-useful information to the users of private company financial statements.
Accounting professionals and private companies have been seeking exceptions and modifications to the U.S. Generally Accepted Accounting Principles or GAAP, which were developed for publicly traded companies, for years. In fact, a Blue Ribbon Panel on Standard Setting for Private Companies provided a series of solutions to the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board. However, the foundation presented a proposal for public comment that dismissed the recommendations of the panel.
Now, privately-held companies have the opportunity to make their case to the Financial Accounting Foundation. The foundation is accepting public comments until January 14, 2012, regarding the input that private companies can have over their own financial reporting destiny. We believe historic change is necessary to effectively bring about sensible, useful and more relevant financial statements for private companies and the users of their financial statements (such as bankers/lenders, insurers, venture capitalists and others).
The American Institute of CPAs argues that an independent board, whose members have private company constituent experience and whose changes are not subject to the Financial Accounting Standards Board approval process, is the best way to assure private companies are sufficiently and appropriately represented in U.S. GAAP.
You are invited to join Rea & Associates in supporting the concept of an independent board. You can do so by sending a comment letter to the Financial Accounting Foundation by using the AICPA’s online resource center at www.aicpa.org/privateGAAP. The process is as easy as inputting your name and clicking the “Send Letter” button. Each letter counts – and your input is critical.
Private companies are half of the nation’s non-government economy. You – and your colleagues in the many other closely-held businesses around our country – deserve a reporting system that is reasonable, sensible and reflective of your unique needs.
If you have any questions about GAAP, the Financial Accounting Foundation or this process, please be sure to ask your accounting professional.