Findings and Conclusions Expected This Fall
Regarding timing of the announcement of the FAF's conclusions, following the completion of the outreach process, the FAF's mid-year update states:
It is anticipated that the Trustees will share their findings and conclusions in the fall.Over 1,100 comment letters
In addition to in-person meetings being conducted by the FAF Trustees, and outreach being conducted by FASB board and staff members, regarding potential improvements to standard-setting for private companies, the FAF has thus far received over 1,100 comment letters on this subject. A very quick scan of the comment letter file reveals at least three types of positions.
A substantial number of the comment letters, following a form-letter type format (e.g, see Comment Letter 5, and Comment Letter 1105), call for adoption of the Blue Ribbon Panel's recommendation to form a new standards-setting board for private companies. For example, those letters state in part:
I believe a systemic problem exists. The current standard-setting process does not adequately take into account the needs of the private company sector. Further, the panel was correct in that there is not a proper weighing of costs and benefits when it comes to setting standards for private companies ... [A] new, separate body with standard-setting authority must be established directly under FAF and not subject to FASB approval. Given the public company reporting pressures placed upon FASB, the board cannot adequately respond to the competing needs of the private company sector."
Others comment letters, however, while sympathetic to the need to provide more relief to private companies, particularly give that the users of private company financial statements do not have the same needs as users of public company financial statements (such as analysts), are not supportive of the wholesale creation of a new standards board for private companies, preferring instead other approaches, including formation of a new advisory group to FASB regarding private company accounting.
For example, the comment letter filed by Richard Avril, Shareholder, Burr, Pilger Mayer states:
Although I believe it is appropriate to focus on meaningful as well as practical standards for private companies, I also believe that the underlying principles for both public and private entities should be essentially the same for the basic recognition and measurement principles. However, they could include simplifying shortcut or default methods for private companies, in addition to differential disclosure requirements.In the same vein, the comment letter filed by FEI's Committee on Private Company Standards called for the formation of a Private Company Task Force, with standard-setting powers similar to that of FASB's Emerging Issues Task Force, whose consensus positions are released for public comment and subject to FASB approval; certain pervasive or controversial issues are sometimes moved from the EITF's agenda directly to the FASB's agenda.
There are currently differential disclosure requirements for private and public entities but other than delay in implementation and certain exclusions, often the requirements are quite labor intensive for many smaller private entities. In this regard, I believe there may be a need for the Financial Accounting Standards Board (FASB) to modify its approach and have a process that focuses as much on the needs of private industry as on the analyst and creditor community requests for more layers of information on public enterprises.
Accordingly, I would be supportive of creating a strong advisory body with significant influence to lobby the interests of the private sector with an ongoing FASB rather than the creation of a separate autonomous principal setting body as proposed by the Blue Ribbon Committee.
I think the possibility of having big and little IFRS, U.S. GAAP and many other country specific GAAP may add complexity to comparability and variations in reporting rather than having similar economic transactions reflected consistently in financial reporting by various types of entities. Additionally, these differences could result in additional complexity in the valuation by the respective enterprises for accounting or other purposes.
FASB Staff Preliminary Findings Issued; Possible Academic Research
The mid-year update on private company standard-setting posted by the FAF notes that in addition to conducting further outreach with preparers, users of private company financial statements and others, "the [FAF] Trustees also may consider whether additional academic research is necessary."
Personally (I remind you of the disclaimer posted on the right side of this blog), I wonder if any such academic research would address matters identified by FASB Chairman Leslie Seidman in her "Outlook: 2011" webcast earlier this year, (see our Jan. 25 blog post), in which she said that as part of FASB's initiatives to improve standard-setting for private companies, "[W]e are developing a white paper on the unique needs of users of private company financial statements."
UPDATE 4:35 PM: FASB separately published preliminary staff findings in a "FASB in Focus: Private Companies: The Path to a Differential Standard-Setting Framework"
FEI's research affiliate, the Financial Executives Research Foundation (FERF), published a report on this subject in 2006, entitled What Do Users of Private Company Financial Statements Want? The report is available in FERF's online bookstore and as a resource on the Private Company Financial Reporting Committee (PCFRC's) website; the PCFRC is a joint committee of FASB and the AICPA.
Stay up-to-date on developments relating to the FAF and FASB's consideration of standard-setting for private companies, by visiting FASB's Non-Public Entity Web Portal.
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