A blue-ribbon panel has recommended that a new set of accounting standards be drawn up for private companies based on U.S. generally accepted accounting principles. The panel also recommended that a private-company rulemaking board be established, separate from the Financial Accounting Standards Board, which currently writes and revises U.S. GAAP.
The details of how the rules will be developed — and how FASB and its parent organization, the Financial Accounting Foundation (FAF), will be involved in the process — will be outlined in a report issued in December, said panel chair Rick Anderson, chairman and CEO of accounting firm Moss Adams, during the panel's fourth and final public meeting last month.
The final product, often dubbed "little GAAP," will be a pared-down version of the full set of rules, requiring fewer disclosures and less-detailed measurements of some assets and liabilities.
The panel was established in December 2009 by FAF, the American Institute of Certified Public Accountants, and the National Association of State Boards of Accountancy to explore the need for separate accounting standards for nonpublic companies. While several models were put up for a vote last month, the 18 panelists — with input from official observers — decided instead to explore some hybrid version of the proposals put before them.
However, the majority of panelists favored a separate set of rules, governed by a separate board, while a handful favored separate rules and a reconstituted FASB that would include more representation from private-company constituents.
The primary argument for carving out a private-company version of GAAP is to make accounting rules "relevant" to private firms by excising unnecessary measurement requirements and transaction disclosures. For example, proponents say the complex rules for measuring the fair value of assets and liabilities should be trimmed.
For many years, preparers and auditors of private-company financial statements have sought a private-company GAAP, insisting that the full set of rules is too complex, and therefore costly and burdensome, for smaller nonpublic companies to apply.
Although private companies are not required to file financial results using GAAP, many have done so at the request of investors and lenders who are more comfortable assessing GAAP-prepared statements. Others use GAAP because they intend to go public, and investment banks that handle initial public offerings prefer consistency in reporting.
Nevertheless, proponents of little GAAP say private-company investors and lenders don't need the same level of detail that the Securities and Exchange Commission requires from publicly held companies.
The (Little) GAAP Band
The 18 members of the blue-ribbon panel charged with developing private-company accounting standards
• Rick Anderson, Chairman, Moss Adams
• William Knese, VP, Finance & Administration, Angus Industries
• Michael Menzies, President & CEO, Easton Bank and Trust
• Billy Atkinson, Board Chair, NASBA
• Kewsong Lee, Managing Director, Warburg Pincus
• David Morgan, Co-managing Partner, Lattimore, Black, Morgan, & Cain
• Daryl Buck, SVP & CFO, Reasor's Holding Co.
• Paul Limbert, President & CEO, WesBanco
• Terri Polley, President, FAF
• Steve Feilmeier, CFO, Koch Industries
• Krista McMasters, CEO, Clifton Gunderson
• Dev Strischek, SVP, Corporate Risk Management, SunTrust Banks
• Hubert Glover, President & Co-founder, REDE
• Barry Melancon, President & CEO, AICPA
• Mark Vonnahme, Retired EVP, Surety, Arch Insurance Group
• David Hirschmann, President & CEO, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
• Jason Mendelson, Managing Director & Co-founder, Foundry Group
• Teri Yohn, Associate Professor, Indiana University