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Users of private company financial statements, typically the owners and their banks, are privy to information or have direct access to company's management if they have questions. Users of public company financial statements are investors that do not have direct access to management, so disclosures must be much more robust.
Recently issued guidance by the FASB might indicate they have recommitted some focus of the impact to private companies (through delayed effective dates of new guidance). However, I'm concerned that focus may fall short and turn out to be short-lived. It would be ideal if we could rely on FASB to consider the needs of private company financial users, however, past practice indicates otherwise. One way to assure this would be to establish a completely separate board that would report to FAF (parent company of the FASB) or create a sub-committee of the FASB. That said, if there were a way to engage FASB to fully consider private company standard setting, I believe that would be the most cost effective and efficient approach to realizing the benefits articulated by the Blue Ribbon Panel. However, FASB would need to demonstrate they are willing and able to commit to that end and be held accountable by FAF or others.
At this point, the complexity and waste for private companies is daunting. Accordingly, some immediate change is necessary; even if initially, it isn't perfect. My recommendations to FAF would be:
- Immediately require FASB to reconsider the most complex standards and issue exceptions and modifications for private companies.
- Immediately require FASB to consider private companies for any newly issued standards.
- With the help of the Blue Ribbon Panel and/or AICPA, immediately formulate "Plan B" (separate board or committee with expected process) if results from the above prove inadequate or FASB declines to participate.
- Determine funding source for separate board/committee, as needed.
It's not too late to provide input. FAF is currently studying the issue and is asking for input. While, original letters are best, the AICPA has developed an online tool to make the process simple and quick. Go to aicpa.org/privateGAAP for the letter-writing assistant and for additional information on this opportunity to change financial reporting standards for private companies. FAF is expected to make decisions soon, so act quickly.
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