In earlier communiqués, we have discussed the ongoing progress of the Blue Ribbon Panel formed to address reporting by private companies. During 2010 the group worked to develop and gain support for the concept of an alternative to existing GAAP for private companies that would better meet the needs of users. As of February 2011, the panel's work is largely complete. In January, it delivered its recommendations (which it had been largely released informally prior to this time) to the Financial Accounting Foundation (FAF), the parent of the Financial Accounting Standards Board. The FAF will consider the recommendations and release it plans this spring.
Remind me again: why is this important to lenders?
The answer is multi-faceted and will develop over time, but includes the following:
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Unlike the FASB, the board for the private company reporting rule-makers (note that this body currently does not have a name) will be comprised of users, particularly representatives of the lending community, rather than accountants. |
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The board make-up will allow continued evolution and focus so that users' needs are met on an ongoing basis. For example, users may indicate a desire to obtain greater disclosure in a selected area that is of particular importance to lenders. This desired action could then be addressed by the new body. |
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Some of the more complex accounting issues may be exempted for private companies, thereby reducing one objection from borrowers in providing financial statements in accordance with GAAP and/or with some level of attestation from independent accountants. The cost in terms of both internal resources and outside auditor involvement will likely be reduced. |
So when will this happen?
As indicated above, the FAF will release its plan this spring. It is likely that the majority of 2011 will be spent on the administrative process of forming the new board and establishing the process whereby accounting rules will be evaluated for applicability/exemption for private companies. It is clear from discussions on this topic that there is a desire to move quickly and meet the needs of the user community. This is most notably evidenced by the approach that will be followed; i.e. consider which existing rules should be modified or exempted for private companies. A more ambitious, but time-consuming, alternative would be a separate set of principles solely for private companies.
It should be noted that the basic concept behind this - alternate GAAP for private companies - has obtained widespread support. The AICPA, upon seeing the concrete proposal that materialized, supported the concept, as have other groups.
We hope you will agree that this is a very positive development for the lending community, and we hope your voice is heard as this area develops.
Please contact me at mmerriman@ksandco.com if you would like additional information or insight on this topic. You can also read more at www.aicpa.org which now has a section devoted to private company reporting.
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