A vote is expected tomorrow on whether a separate set of accounting rules should be created for private companies doing business in the United States. The new stand-alone rules would be a departure from the generally accepted accounting principles currently used by both public and private companies.
The vote is scheduled to take place at the conclusion of a day-long meeting convened by a blue-ribbon panel that was established in December 2009 for the purpose of investigating the need for private-company GAAP, also known as “little GAAP.” Tomorrow’s meeting will be the fourth and final time the panel — led by Rick Anderson, chairman of accounting firm Moss Adams — meets before issuing a recommendation and releasing a subsequent report in January 2011.
The panel was formed by the American Institute of Certified Public Accountants, the National Association of State Boards of Accountancy, and the Financial Accounting Foundation, the parent organization of the Financial Accounting Standards Board.
Supporters of private-company GAAP argue that although current accounting rules provide consistency and comparability across a diverse group of companies, they are extremely complex and therefore burdensome for smaller companies to apply. As a result, many private companies “take more exceptions to GAAP,” resulting in less comparability, according to a panel report. Indeed, fans of little GAAP say the level of detail that public-company investors require from financial statements is likely overkill for private-company stakeholders.
The loudest call for change comes from financial-statement preparers and their auditors, rather than from users, the panel said in a September report. The panel also said it was planning to review how other countries handle private-company accounting rules, “particularly those that are using or have considered using International Financial Reporting Standards for small and medium-sized entities.” IFRS for SMEs is a stripped-down version of the 2,500 page rulebook, numbering only 250 pages. By comparison, U.S. GAAP contains about 12,000 pages.
By July, the committee was discussing alternative standard-setting models and structures, with most panel members settling on one of three options:
• Keep current U.S. GAAP, but improve the system for considering potential differences for private companies.
• Reorganize U.S. GAAP into a “baseline” for all entities, with separate public company add-ons.
• Create a separate stand-alone private-company GAAP based on current U.S. GAAP, which is similar to what Canada has done with Canadian GAAP.
The panel noted that the models will be discussed during tomorrow’s meeting.
CFO will cover the final meeting of the blue-ribbon panel live on Twitter. To read updates on the meeting, see www.twitter.com/cfopub.