FAF has approved a new organization that will determine what rules in GAAP don’t need to be applied to private companies.
The lead paragraph from Accounting Today:
The Financial Accounting Foundation’s board of trustees has voted to establish a new Private Company Council that will determine whether exceptions or modifications to U.S. GAAP for privately held companies are necessary.
There are two major changes from the initial discussion.
First, the name has been changed to Private Company Council (PCC) from Private Company Standards Improvement Council, which I suggested could be called PICSIC.
Second, the PCC will not be chaired by a member of FASB.
What will remain the same is PCC will be under the control of FASB. The FASB has to approve exposure drafts before they are released for discussion and will have to approve the final rules. So there is essentially no independence for the private company rule maker.
New set of accounting rules for private companies?
The AICPA praised the FAF’s decision. The Accounting Today article quotes a complimentary comment from the AICPA.
What is odd though is on the same day the AICPA announced it is moving forward to develop another financial reporting framework for private companies. Check out this comment from Accounting Today:
The AICPA also announced plans Wednesday to develop an “other comprehensive basis of accounting” (OCBOA) financial reporting framework to meet the needs of some privately held small- and medium-sized enterprises (SMEs), as well as the users of the financial statements of these entities. The SME OCBOA framework will be a less complicated and a less costly alternative system of accounting to U.S. GAAP for SMEs that do not need U.S. GAAP financial statements.
For those not paying attention to IFRS, in that world there is IFRS and IFRS for SMEs. The full set of accounting rules is in IFRS. A scaled down version for smaller organizations is in IFRS for SMEs. In Hong Kong there is also a separate set of rules for smaller organizations. It would appear that is the direction the AICPA wants to go.
Here is the range of financial reporting frameworks we could wind up with for private companies to choose from:
- U.S. GAAP
- exceptions from GAAP carved out by PCC for use by private companies
- SME OCBOA – private company rules from AICPA, which would presumably be a far more robust framework than OCBOA yet far simpler than what PCC provides
In my simple view from my little corner of the accounting world, it looks like the FAF and AICPA will develop competing models for private company financial reporting frameworks.
Let the race begin!