Transcript Privately-Held Company Financial Reporting TF

Private Company Financial
Reporting
Brief History of Efforts in U.S.
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1974 – AICPA
• Titled Committee on GAAP for Smaller and/or
Closely Held Businesses.
• CPA focused - Discussion Paper (138
responses); extensive member forums.
• DP Question 1 – “Are any differences in the
application of GAAP appropriate?”
• Direct contact with users?
• CPAs said user needs not met and financials too
complex for users.
• Said statistical summary of responses “not
helpful.”
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1974 – AICPA (cont)
RECOMMENDATIONS
• FASB provide differential disclosures.
• No differential recognition and
measurement.
RESULTS
• FASB complied in certain standards (e.g.,
earnings per share).
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1981 - AICPA
• Titled Special Committee on Accounting
Standards Overload.
• Offshoot of broader 1978 study by AICPA
Special Committee on SMEs.
• Formed “to study alternate means of
providing additional relief from accounting
standards which are not cost-effective for
small businesses.”
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1981- AICPA (cont)
• Discussion Paper proposed conclusions
and recommendations.
• Basis was from SME Committee
conversations with AICPA members.
• Direct contact with users?
• FASB and AcSEC wrote comment letters.
• Final Overload Committee report differed
in some aspects from its DP.
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1981 – AICPA (cont)
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RECOMMENDATIONS
FASB reconsider certain standards.
FASB simplify standards by avoiding complex
and detailed rules (principles-based in today’s
lingo?).
Promote/elevate income tax basis as a
substitute for GAAP.
Differential recognition and measurement.
FASB study user needs.
Others.
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1981 – AICPA (cont)
RESULTS
• FASB research effort – see next slide.
• Otherwise…..
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1983 - FASB
• Titled Invitation to Comment: Financial
Reporting by Private and Small Public
Companies.
• IC developed with advisory group that
included AICPA-related committee
members.
• 800 responses – 193 users (including 154
“lending officers and analysts in
commercial banks”).
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1983 – FASB (cont)
• IC had different sections for various
constituents.
• Good questions posed to users and
others; dialogue and push-back missing
though.
• Related efforts around this time included
Lou Harris surveys and a research study
with over 70 interviews and use of
questionnaires.
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1983 – FASB (cont)
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FINDINGS
CPAs perceive lenders’ needs differently than
lenders do.
Creditors needs and decision-making processes
are basically the same for private and public
companies.
Users need complete GAAP financials that are
audited or reviewed.
Cost/benefit equation differs based on company
size.
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1983 – FASB (cont)
FINDINGS (cont)
• 60% of practitioners supported different
measurement in certain instances;
financial managers split; only 9% of users
supported.
• GAAP financials important tool for banks
even though they can get info directly from
companies.
• Not clear if 70 interviews supported these.
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1983 – FASB (cont)
RESULTS
• FASB formed small business advisory
group as sounding board for each
standard-setting effort.
• Others.
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1996 – AICPA
• Titled Special Task Force on Standards
Overload
• Focus groups of CPAs
• Report made to PCP Executive Committee
• Concluded there is an accounting
standards overload problem
• Relied on previous studies
• Cited reasons why problem not solved
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1996 – AICPA (cont)
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RECOMMENDATIONS
Solution rests in existing GAAP framework
Increase small firm input in standardsetting process (including representation
on FAF and FASB)
Literature simplification and codification
Disclosure guidance for OCBOA financials
Others
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1996 – AICPA (cont)
RESULTS
• “Principle-based” standards should result
in simplified standards?
• Codification improvements – original
pronouncements identify related AICPA
and EITF literature; FASB-AICPA
agreement on CD-ROM licensing.
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2005 – Report of the PCFR Task
Force
• Broad-based statistical and non-statistical
outreach to over 3,700 key constituents,
including to over 650 users.
• Archived web site
http://www.aicpa.org/Professional+Resour
ces/Accounting+and+Auditing/Accounting
+Standards/Private+Company+Financial+
Reporting.htm
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2005 Report Findings
• “Attributes” of GAAP reporting have high value
according to all constituents (e.g., common
language, consistency, etc)
• Too many GAAP-specific requirements lack
relevance or decision usefulness according to all
constituents
• A majority of each of the constituent groups who
had an opinion believe it would be useful if
underlying accounting in GAAP reporting were
different, in certain instances, for public vs. nonpublic companies
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2005 Report Conclusions
• GAAP for private companies should be
developed based on concepts and accounting
that are appropriate for the distinctly different
needs of constituents of that financial reporting
• Fundamental changes should be made in the
current GAAP standard setting process to
ensure that the financial reporting needs of
private company constituents are met
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