A BLUE-RIBBON PANEL

Toward the end of 2009 the Financial Accounting Foundation (FAF) in cooperation with the AICPA and the National Association of State Boards of Accountancy formed a blue-ribbon panel to address how accounting standards in the United States can best meet the needs of users of private company financial statements. The formation of this panel represents the latest in a series of developments related to the “big GAAP/little GAAP” debate. (See my blog of May 14th.)

There are over 22 million private companies in the U.S. but there are only about 17,000 publicly traded companies so it would appear that addressing the accounting and financial reporting needs of this very large group should certainly be a priority of the FAF. Rick Anderson, chairman and CEO of Moss Adams LLP and a member of the FAF Board of Trustees, was appointed chairman of the panel. The panel is expected to provide recommendations on the future of accounting standard-setting for private companies, including whether there is a need for separate, stand-alone accounting standards for those companies.

The panel evaluated five possible approaches. They rejected two of the five approaches and then expanded their evaluation of the remaining three. The panel rejected the current approach to setting generally accepted accounting principles related to private companies. They do not believe that the current method is meeting user needs in a cost-effective manner. They also rejected adoption of the current International Financial Reporting Standards for Small and Medium sized Entities, IFRS for SMEs.

The three remaining models that the panel is evaluating are as follows:

1. U.S. GAAP with exclusions and enhancements for private companies.
2. Basic U.S. GAAP with public company add-ons, and
3. Separate, stand-alone standards for private companies based on current U.S. GAAP.

The panel is also exploring whether to recommend a board separate from the FASB to oversee private company standards. Barry Melancon, CEO of the AICPA, and one of the panel members, believes that they should.

Before making its final recommendations the panel sought input from the public about how accounting standards can best meet the needs of users of private company financial statements. The comment period just ended on September 15, 2010. The panel is expected to make its final recommendations by the end of the year.

The issue of big GAAP vs. little GAAP has been debated for decades. So, the likelihood that the recommendations of the panel will be adopted in the near term is probably very small. However this is an issue that I believe needs to be addressed. What do you think?