private company financial reporting

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Copyright © 2011 American Institute of CPAs Private Company Financial Reporting Historic Changes to Benefit the Marketplace

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Private Company Financial Reporting. Historic Changes to Benefit the Marketplace. Background on Financial Reporting. U.S. Not Alone . Canadian Accounting Standards Board decided one size does not fit all and published Accounting Standards for Private Enterprises in Dec. 2009 - PowerPoint PPT Presentation

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Page 1: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Private Company Financial Reporting

Historic Changes to Benefit the Marketplace

Page 2: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Background on Financial Reporting

15,000 issuers vs. 28.5 million private companies but GAAP driven by public company issues

Small businesses employ more than half of all private sector workers

Private companies and their financial statement users have information needs different from public companies

Page 3: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

U.S. Not Alone • Canadian Accounting Standards Board decided one

size does not fit all and published Accounting Standards for Private Enterprises in Dec. 2009

• UK Accounting Standards Board proposing three-tier system of financial reporting

• Germany has become first major country to have two standard setters

• Council on Accounting for Unlisted Companies formed in Japan to determine if changes should be made to standard-setting process for unlisted companies

• IFRS for SMEs – being used in many areas of the world and being considered in some others

Page 4: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

What U.S. Constituents Say about GAAP for Private Company Financial Reporting

• Too many GAAP-specific requirements not useful or relevant for private companies’ financial statement users

• Greater FASB emphasis on equity/public company investors

• Most important problem: relevance• Increased complexity is burdensome, time-

consuming

Based on 2004 AICPA task force research among constituents with 3,709 responses

Page 5: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

In sum…

Private companies incurring significant unnecessary cost for financial statement preparation and audit, review or compilation services

Private companies are increasingly taking GAAP exceptions

Current system is not attuned to the needs of private company financial statement preparers and users

Page 6: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

U.S. Answer: Blue Ribbon Panel on Private Company Financial Reporting

Address how accounting standards can best meet private company financial statement users’ needs

Determine future of GAAP standard-setting process for private companies

18 panel members: cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors

Page 7: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Panel’s Major Conclusions

Resolved: A systemic problem exists that needs solving

Supermajority recommendation #1:

• Enhance GAAP for private companies by making significant modifications, where warranted

Supermajority recommendation #2:

• FAF should create a separate private entities accounting standards board

Page 8: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Reasons for Separate Board Not Subject to FASB Approval

Board consisting of members with private company constituent experience would set different standards

FASB carries out SEC’s statutory responsibility for

accounting standards (investor orientation)

History and current environment demonstrate FASB cannot effectively

balance competing needs of both public company

and private company areas

Page 9: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Other Key Recommendations

Framework for differential decision criteria3-5 year sunset review to determine effectiveness of new board

5-7 board members

Page 10: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Current Status of Initiative

FAF formed working group

Group has been engaged in outreach to advisory groups

and individuals

Action plan to be issued this fall

Now is the time to affect outcome

Page 11: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

How You Can Shape Your Future

Participate – Tell FAF you support panel’s recommendations for:•Differential standards•Separate, autonomous standard-setting body

Page 12: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Online Letter Assistant for Customized or Original Letters

Page 13: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

aicpa.org/privateGAAP

• Backgrounder• FAQ• Videos• Articles• Press release template

Resources to Help

Send letter to FAF usingonline tool

Gather support from others with education toolkit

Page 14: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

Time for Change…

Page 15: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

…It’s Decades in the Making

Page 16: Private  Company Financial Reporting

Copyright © 2011 American Institute of CPAs

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