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Should the U.S. Forget about Private-Company GAAP?
Posted by Marie Leone | | US
March 3, 2010 5:10 PM ET

Forget little GAAP: mini-IFRS is already here.

That, at least, is one idea that will be examined over the next year by a blue-ribbon panel sponsored by the American Institute of Certified Public Accountants, the Financial Accounting Foundation (FASB's parent organization), and the National Association of State Boards of Accountancy. The 18 experts on the panel, who were named last week, will consider whether the United States needs a single set of accounting standards for private companies. (The experts include three CFOs: Steve Feilmeier, finance chief of Koch Industries, one of the nation's largest private companies; Daryl Buck, CFO of Oklahoma grocery chain Reasor's; and William Knese, vice president of finance for Angus Industries.)

The subject has been raised before but never got much traction. That may change now that the International Accounting Standards Board has released a slimmed-down version of its 2,500-page set of international financial reporting standards used by public companies. Released in July, the 230-page IFRS for SMEs (small and medium entities) is a ready-made rule book that could become a de facto standard for U.S. private companies.

The panel appointments come on the heels of an announcement by the Securities and Exchange Commission confirming that the regulator is still on track to evaluate whether public companies should be required to file results using IFRS. Both the blue-ribbon panel and the SEC will release their findings in 2011. But whether there will be much interplay between the two groups is unclear.

Nevertheless, the U.S. private sector has already set some IFRS wheels in motion. In 2008, AICPA recognized the IASB as an official standard-setter, which means U.S. auditors are allowed to issue opinions on private-company financial results filed using IFRS.

Currently, U.S. private companies "can use whatever they darn well please" with respect to accounting standards, notes Bruce Pounder, a former private-company CFO who now heads Leveraged Logic, a consultancy. He says many private companies use U.S. GAAP, but many others use tax-basis accounting, cash-basis accounting, or so-called OCBOA (other comprehensive basis of accounting.)

And while Pounder admits that as a practical matter there are some reasons for private companies to stick with U.S. GAAP -- such as loan covenants that require GAAP reporting -- not every company is constrained in that manner. So by the time the SEC is ready to announce its decision on IFRS, the blue-ribbon panel may have already given private companies its blessing to go global.

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