Growth Companies

A Private-Company Foothold Could Strengthen FASB

The standard-setter puts the needs of privately held entities high on its to-do list, as its future role over standard-setting for all U.S. compani...
Sarah JohnsonMarch 12, 2012

As the extent of its future role in standard-setting for all U.S. companies remains in question, the Financial Accounting Standards Board is jockeying for control over privately held companies.

In a webcast today about FASB’s 2012 agenda, chairman Leslie Seidman talked first about the board’s renewed focus on private companies, noting that the rulemaker has “beefed up its internal resources” for keeping such companies’ concerns in mind during its standard-setting work.

Last week, for example, the board announced it is rethinking the definition of “nonpublic entity,” a term that has various meanings in several standards. The definition is important for private companies that follow generally accepted accounting principles, because they may get breaks on rule effective dates or may not have to provide as many disclosures as public companies. Seidman also mentioned the 2011 appointment of former private-company CFO Daryl Buck to FASB’s board as proof that FASB — long accused of not caring about private companies’ needs — has changed its ways.

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FASB may want to solidify itself as the owner of the accounting rules private companies follow, because it may lose some authority after its standards are fully converged with — and U.S. companies transition to — international financial reporting standards (IFRS). Earlier this year, Securities and Exchange Commission chief accountant James Kroeker implied a pending proposal from the regulator would give FASB a role in endorsing new IFRS rules. FASB would still provide input on the global standards but would not have the same influence as it does now with the International Accounting Standards Board. The two boards have been working in tandem to converge their standards for several years.

Seidman said Monday that her board will continue to have a “very substantive role” in providing the IASB with input and working through differences in U.S. GAAP and IFRS. In some cases, she said, FASB may decide an IFRS standard is superior because “it promotes global comparability.”

In the more immediate future, Seidman is emphasizing her board’s authority over private-company rules. For years, the question of whether those companies should have their own version of GAAP and who should be in charge of it has been floated within accounting circles and private companies’ corporate finance departments.

For her part, Seidman insisted that private-company concerns have been a high priority for FASB. “Last year, the fact that we moved forward with the simplification of goodwill impairment testing was directly attributable to what we heard in outreach with private companies,” she said. The board is working on a framework to guide its decisions for making concessions to private companies in future rules, and expects to release a paper for public feedback on that topic by the end of June.

Last year the Financial Accounting Foundation (FAF), which oversees FASB, floated the idea of creating a Private Company Standards Improvement Council, which would let FASB retain its current power. The group would operate within FASB and outline exceptions and differences of GAAP specifically for private companies.

But there’s a separate push, by a blue-ribbon group headed by the CEO of the American Institute of Certified Public Accountants, for a completely separate private-company standard-setter overseen by the FAF that would merely “work closely” with FASB.