FASB assessment on differential standard-setting framework for private companies

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18 Jul 2011

The US Financial Accounting Standards Board (FASB) has published FASB in Focus — Private Companies: The Path to a Differential Standard-Setting Framework.

In the report, the FASB staff provides details about its initial assessment of "how and why the needs of those who use private company financial statements differ from those who use public company financial statements and how the cost-benefit considerations of financial reporting vary between private companies and public companies." The staff identified six key factors that differentiate private company financial reporting considerations from public. Those factors are:
  • Types of users
  • Access to management
  • Investment strategies
  • Ownership structures
  • Accounting resources
  • Education

This assessment is the first step FASB is taking in developing a 'differential framework' when deciding how to adjust the requirements for recognition, measurement, presentation, disclosure, effective dates and transition methods for financial accounting standards that apply to private companies. In January 2011, the 'differential framework' was a key recommendation suggested by the Blue-Ribbon Panel on Standard Setting for Private Companies in a report to the Board of Trustees of the Financial Accounting Foundation (FAF). In addition, the panel called for a creation of a new board, overseen by the FAF, to focus on U.S. GAAP for private companies.

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