NEWS RELEASE 07/31/12
FASB Seeks Input on Private Company Decision-Making FrameworkNorwalk, CT, July 31, 2012—The Financial Accounting Standards Board (FASB) today issued an Invitation to Comment on a staff paper that outlines an approach for deciding whether and when to modify U.S. Generally Accepted Accounting Principles (GAAP) for private companies. The paper, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies, contains initial FASB staff recommendations for criteria to determine whether and in what circumstances it is appropriate to adjust financial reporting requirements for private companies following U.S. GAAP. Stakeholders are asked to provide input on the document by October 31, 2012.
The decision-making framework would help the FASB and the newly created Private Company Council (PCC) identify the unique needs of users of private company financial statements as well as opportunities to reduce the complexity and cost of preparing private company financial statements in accordance with U.S. GAAP.
Many private companies issue financial statements in accordance with U.S. GAAP for the benefit of their investors and lenders. The FASB is the private-sector, independent, organization that sets U.S. GAAP standards used by private companies, public companies, and not-for-profit organizations.
Before it is implemented, the proposed decision-making framework must be agreed upon jointly by the FASB and the PCC. The PCC is a new body created by the Financial Accounting Foundation (FAF) to identify issues in U.S. GAAP related to private companies and advise the FASB on ongoing private company issues. Working with the FASB, and guided by the framework, the PCC will determine whether exceptions or modifications to existing nongovernmental U.S. GAAP are necessary to address the needs of users of private company financial statements. The PCC then will identify, deliberate, and vote on any proposed changes, which will be subject to endorsement by the FASB and submitted for public comment before being incorporated into GAAP.
The recommendations contained in the Invitation to Comment reflect what stakeholders told the FASB staff about their experiences using, preparing, auditing, reviewing, and compiling private company financial statements. Individuals and organizations are asked to provide comments on six significant factors the staff identified that differentiate the financial reporting considerations of private companies, specifically:
- Types and number of financial statement users
- Access to management
- Investment strategies
- Ownership and capital structures
- Accounting resources
- Learning about new financial reporting guidance.
- Recognition and measurement
- Display (presentation)
- Effective dates
- Transition methods.
The Board has chosen not to deliberate the topics in the Invitation to Comment until stakeholders have provided input on the staff’s preliminary recommendations, and the chairman and all members of the PCC have been appointed. At that time, the Board and the PCC will jointly reach tentative conclusions about the criteria to be included in the framework.
The Invitation to Comment is available at www.fasb.org.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.