An investigation into how accounting
standards can best meet the needs of users of private company
financial statements will likely lead to divergence between private
company GAAP and public company GAAP in the US.
It is also likely the Financial Accounting
Standards Board (FASB) will have a lesser role in deciding what
standards US private entities use.
The American Institute of Certified Public
Accountants (AICPA) and the Financial Accounting Foundation, which
oversees standard-setting in the US, formed a ‘blue ribbon panel’
late last year to investigate private company reporting.
Most private companies in the US currently use
the complex and voluminous US GAAP. They can technically also use
standards released by the International Accounting Standards Board
– IFRS or IFRS for SMEs – but so far there are few signs US banks,
which are the primary financial statement users, will accept those
Time for a solution
AICPA chief executive Barry Melancon said
private company reporting has been debated in the US for more than
three decades. He predicts the current panel represents the best
chance of a solution.
“Based on the first meeting, there is a
reasonable chance this committee will recommend a process change
that will allow for differences for private companies,” Melancon
“Right now that process could exist, but the
FASB itself would have to authorise that… I think [this group] would look very aggressively at a process that would not just be
centred at the FASB.”
When forming their proposals, the panel will
look at private company reporting in Canada, where a set of
standards distinct from IFRS has been developed. It will also
consider IFRS for SMEs.
The panel’s work is due to be completed by the
end of the year.
Melancon predicted there will be something
“pretty big” in the next year, depending on what the