FASB seeks input on private company decision-making framework

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01 Aug 2012

The United States Financial Accounting Standards Board (FASB) issued an Invitation to Comment on a staff paper outlining an approach for deciding whether and in what circumstances to modify US GAAP for private companies. In its paper, 'Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies', the FASB recommends criteria for determining when it is appropriate to adjust financial reporting requirements for private companies. The goals of the decision-making framework are (1) to help the FASB and the newly-created Private Company Council (PCC) identify the needs of private company financial statements users and (2) to create opportunities that reduce the complexity and cost of preparing private company financial statements in accordance with US GAAP.

Before it is implemented, the proposed decision-making framework must be agreed upon by both the FASB and the PCC. As reported earlier, the PCC was established by the Financial Accounting Foundation (FAF) to to improve the process of setting accounting standards for private companies following US GAAP. Working with the FASB, and guided by the framework, the PCC will determine whether exceptions or modifications to existing non-governmental US GAAP are necessary to address the needs of users of private company financial statements. The PCC will then identify, deliberate, and vote on any proposed changes. These changes will be subject to endorsement by the FASB and then submitted for public comment before they can be 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. The staff identified six significant factors that differentiate private companies' financial reporting considerations: types and number of financial statement users, access to management, investment strategies, ownership and capital structures, accounting resources, and learning about new financial reporting guidance.

The Invitation to Comment also seeks feedback on five areas where financial accounting and reporting guidance might differ for private and public companies: recognition and measurement, disclosures, display (presentation), effective dates and transition methods.

The Board will not deliberate the topics in the Invitation to Comment until after it has received stakeholders' input on the preliminary recommendations and all members of the PCC have been appointed. The FASB and PCC will then jointly reach tentative conclusions about the criteria to be included in the framework.

Feedback on the FASB's Invitation to Comment is due by 31 October 2012.

Please click for:

  • The press release to access the Invitation to Comment on the FASB's website.
  • Deloitte (United States) Heads Up newsletter on the private-company decision-making framework discussion paper.
  • FASB webcast on the private company decision-making framework project, held on 14 September 2012.

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