AICPA Council Votes Overwhelmingly to Send a Strong Message to FAF: Adopt the Blue Ribbon Panel Recommendations for an Independent Board
The Resolution Further Authorizes the AICPA Board to Consider "All Options"
PHOENIX, Oct. 18, 2011 /PRNewswire-USNewswire/ -- The American Institute of Certified Public Accountants' (AICPA) governing Council today overwhelmingly approved a resolution that sends the Financial Accounting Foundation (FAF) a strong message: either FAF moves to adopt the Blue Ribbon Panel on Standard Setting for Private Companies' (the Panel) recommendations for a separate board - which is the AICPA's preference- or the AICPA will consider other options.
If FAF continues to pursue its current proposal, the AICPA board of directors will look at other solutions for addressing the needs of private companies. This could include creating a separate standard setting body to develop private company generally accepted accounting principles (PCGAAP) or a comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting consistent with the Panel's recommendations.
The Panel was a broad-based group representing private company constituents, including bankers, sureties, venture capitalists, chief executive officers, preparers, CPA practitioners and regulators. In January 2011, the Panel recommended establishing a private company standards board under FAF to set differences in U.S. generally accepted accounting principles (U.S. GAAP). But in October of 2011, FAF rejected that recommendation and proposed a Council essentially replicating what exists today in the Private Company Financial Reporting Committee (PCFRC) , which likewise is subject to the ratification of the Financial Accounting Standards Board (FASB). FAF's refusal to adopt the Panel recommendation disagreed with the more than 3,000 letters from private company constituents and the 30-plus state CPA societies who wrote supporting the Panel's recommendation.
"The FASB has proven over many years that it cannot deliver meaningful improvement to private company reporting standards," said Barry Melancon, CPA, AICPA president and CEO. "FASB's primary focus has been and should be on the public company sector and on international convergence. Fifty percent of the U.S. economy comprises private companies. This critical sector of our economy deserves a board focused solely on their specific needs."
The current PCFRC has been unable to overcome FASB's reluctance to accept key modifications to U.S. GAAP. Given the historic FASB vetoes, it is expected that identifying and executing needed differences in U.S. GAAP standards for private companies would be unlikely to occur, if at all, until 2014, which is a full four years since the formation of the Panel and nine years since the AICPA Private Company Financial Reporting Task Force called for fundamental change to the standard-setting process for private companies. Further, FAF's proposal is unresponsive to the Panel's demand for immediate action.
"Because of the inadequacies in GAAP for private companies, we see erosion as private companies take more exceptions in order to make GAAP fit their needs," said Greg Anton, CPA, incoming AICPA chairman.
"We believe that there should be one GAAP, but that GAAP must be modified as needed to reflect the unique circumstances of private companies. As it stands now, FAF's latest proposal is inadequate and provides no assurances that they are serious about making financial reporting more relevant and cost-effective for private companies," said Paul V. Stahlin, CPA, outgoing AICPA chairman. "The Council's resolution reaffirmed a long standing position that the independent board be established under FAF. But FAF seems unwilling or unable to take the steps. We hope they change their mind, because it is imperative that privately-held companies be better served in the near future."
About AICPA
The American Institute of Certified Public Accountants (www.aicpa.org), founded in 1887, is the world's largest association representing the accounting profession, with nearly 377,000 members in 128 countries. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting; membership is also available to accounting students and CPA candidates. The AICPA sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination.
The AICPA maintains offices in New York, Washington, D.C., Durham, N.C., Ewing, N.J. and Lewisville, Texas.
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AICPA Council Resolution
Private Company Financial Reporting
WHEREAS, In October 2009 this Council overwhelmingly supported differences in U.S. GAAP, where appropriate for private companies; and
WHEREAS, In November 2009 the AICPA Board of Directors approved a motion approving the AICPA continuing its efforts to determine how GAAP for private companies should be set and the resulting form of those standards, including forming and participating in a Blue Ribbon Panel on Standard Setting for Private Companies; and
WHEREAS, In January 2011 the Blue Ribbon Panel on Standard Setting for Private Companies, a broad-based group representing bankers, sureties, venture capitalists, chief executive officers, preparers, CPA practitioners and regulators, recommended the establishment of a private company standards board under the Financial Accounting Foundation, similar to the Financial Accounting Standards Board and the Governmental Accounting Standards Board, to set differences in U.S. GAAP standards, where appropriate, for privately-held companies; and
WHEREAS, In October 2011, the Financial Accounting Foundation proposed a model for the consideration of differential standards that rejected that recommendation, despite receipt of letters from over three-thousand private company constituents and over thirty state CPA societies supporting that recommendation, and issued a proposal that fails to create a private company standards board comprised of private company constituent representatives; and
WHEREAS, The Financial Accounting Foundation's proposal would create a new body that would not be constituted until mid-2012 at the earliest, and with members meeting at most six times per year, and with a process involving subsequent Financial Accounting Standards Board review and approval (as has effectively occurred with the Private Company Financial Reporting Committee in place to date),Council anticipates that identifying and executing needed differences in U.S. GAAP standards for private companies, given the recent inabilities of the Private Company Financial Reporting Committee to overcome the reluctance of the Financial Accounting Standards Board to accept key modifications to U.S. GAAP, would not likely occur, if at all, until 2014, which is a full four years since the formation of the Blue Ribbon Panel, which is nine years since the AICPA Private Company Financial Reporting Task Force called for fundamental change to the standard-setting process for private companies, and which is unresponsive to the Blue Ribbon Panel's demand for immediate action; and
WHEREAS, The private company sector is a major engine of the U.S. economy accounting for approximately 28 million companies nationwide and deserves a true means of achieving relevant and cost-effective financial reporting standards; and
WHEREAS, A standard-setting model, as the one proposed by the Financial Accounting Foundation, that gives authority to the Financial Accounting Standards Board (whose focus is on and should be on the public company sector and on international convergence) over the setting of differential standards for private companies, has been proven incapable of delivering meaningful improvement to private company financial reporting over many years and resulted in diversity in practice for private company financial reporting;
WHEREAS, Council has supported and continues to support the establishment of a private company standard-setting board under the Financial Accounting Foundation, inasmuch as a board comprised of individuals working in, serving, or using the financial statements of private companies can best set the differences to U.S. GAAP for private companies; and
WHEREAS, The Financial Accounting Foundation's proposal does not encompass such a standard-setting board, but instead would create a new body which in essence is a continuation of the current Private Company Financial Reporting Committee with no power to set standards and only inconsequential modifications and a new name, and which is therefore not adequate to deliver meaningful change to private company financial reporting in a timely manner; and
WHEREAS, Council is desirous of AICPA taking further action to support and achieve the recommendations of the Blue Ribbon Panel and provide relevant financial reporting standards to the private company sector without delay;
NOW THEREFORE Council approves the following resolution:
BE IT RESOLVED, That this Council instructs AICPA's Board of Directors to submit to the Financial Accounting Foundation a comment letter setting forth AICPA's disagreement with the Financial Accounting Foundation's proposal and restating AICPA's support for the recommendations made by the Blue Ribbon Panel; and
BE IT FURTHER RESOLVED, That because the Financial Accounting Foundation's proposal does not contain the establishment of a board under the Financial Accounting Foundation empowered to set differences in U.S. GAAP standards where appropriate for privately-held companies, which is the preference of this Council, and if the Financial Accounting Foundation's proposal is not modified to include such a board under the Financial Accounting Foundation, this Council directs the AICPA Board of Directors to consider all options, including consideration of other established independent standard-setting bodies as the standard setter for U.S. GAAP for private companies, the creation of a committee or board within the AICPA or a standard-setting body as a separate entity, to develop private company generally accepted accounting principles (PCGAAP) or a comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting consistent with the Blue Ribbon Panel recommendations.
SOURCE American Institute of Certified Public Accountants
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