Chuck Rittenhouse, CPA, CMA, CVA
On July 2, 1776, the Second Continental Congress approved a measure legally separating the thirteen colonies from Great Britain. Two days later the Continental Congress approved a Declaration of Independence announcing the earlier resolution. Great Britain was less than thrilled with the resolution.
In 2010, a “blue ribbon” panel was assembled by the AICPA to represent a cross-section of constituencies from owners to lenders to investors to preparers. The panel was sponsored by the AICPA, the FAF, Financial Accounting Foundation (which oversees FASB, Financial Accounting Standards Board), and the National Association of State Boards of Accountancy. The panel rejected the International Financial Reporting Standards, IFRS, convergence path being followed by FASB and evaluated three other options for private company financial reporting: IFRS for Small- to Medium-sized Enterprises, IFRS for SMEs; separate private company standards, or modified GAAP for private companies. On December 2nd and 3rd, the panel met and after much discussion decided that the best approach would be a modified GAAP approach with standards developed by a separate board, much the way the Governmental Accounting Standards Board operates today.
In arriving at their decision, the panel cited the general lack of responsiveness to private company financial reporting over the last 40 years and the cost of obtaining information required by FASB, currently and in the future. The idea is to separate the focus from the 6,449 publically traded companies[1] back to the more than 2.3 million privately held companies that employ more than 5 people[2]. The panel cited three examples of unnecessary and expensive reporting required by FASB, that lenders and investors of small to medium size privately held companies find of limited usefulness: goodwill impairment, variable interest entities (VIE), and uncertain tax positions. Fair value measures to determine goodwill impairment are expensive to obtain, as well as the consolidation of a VIE that has little or no relation to the business. The uncertain tax positions disclosure, or FIN 48, was created because of issues found in public company reporting. As with Goodwill and unrelated VIEs, most investors and lenders discount or ignore the uncertain tax information that the company has paid so dearly to provide.
As was the case with Great Britain over 200 years ago, FAF was less than thrilled with the recommendation to set up a separate board. So, how can you be heard? First, put the musket away, but keep your powder dry. Second, grab your handy computer with the internet connection and visit the AICPA website. There is more information on the private company reporting initiative, plus a link to create a letter to contact the FAF directly. Please make the most of this unprecedented opportunity to let your voice be heard! Contact the FAF and let them know your opinion.
