Thirty three state CPA societies have reached out to the Financial Accounting Foundation (FAF) or passed regulations urging it to create a new board to write differential financial reporting standards for private companies. Alabama, Arkansas, Colorado, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin and Wyoming all feel FASB's current standards setting process does not adequately address the needs of the private company sector.
“In today’s business world it is extremely rare to get an overwhelming consensus supporting one idea. However, the responses from the state societies are another example of the CPA profession's overwhelming support for an independent board to set differential standards for private businesses,” said Barry Melancon, American Institute of Certified Public Accountants (AICPA) president and CEO. “The message is clear; FAF must do this now or run the risk of missing our best opportunity to make GAAP relevant for private companies.” The thirty three states in agreement on this issue represent some 275,000 CPAs.
These state societies basically told FAF that GAAP has become too complex, and the cost associated with GAAP-based financial reporting has become too much of a pain in the assets for private companies, placing an unnecessary burden on these companies with little benefit to financial statement users as a result of this effort. Personally I think the states here are forgetting that the complexity of GAAP and its esoteric intricacies keep a lot of CPAs gainfully employed, as someone actually has to analyze, manipulate, audit and teach that crap. CPA review instructors need to sell FAR videos. Caleb and I need things to make fun of, like SEC Chief Accountant James Kroeker reminding a PACE University IFRS discussion that the P in GAAP stands for principles. Right. Like we forgot.
Anyway, nearly 3,000 letters have been sent to FAF from the private company constituency in support of this separate board for private company reporting standard setting. Maybe FASB has too much to do and too many clever interns to train. Maybe FASB has lost its public company influence and this is just the first step in the coup to overthrow it. I haven't heard very many pushing for more FASs directly handed down from (mostly) European accounting standard setters but that's an argument for a different day.
“The boards of more than half of the country’s state CPA societies, representing more than a quarter of a million CPAs, agree that a systemic problem exists,” stated Paul V. Stahlin, chairman of the AICPA. “After over 30 years of research by numerous diverse and independent groups, the only conclusion is that an autonomous standard-setting body under FAF to set differential standards for privately held companies must be created."
Must be. There's no way around that.
And for those interested, here's a tl;dr PwC report tangentially related to private company accounting standards you can read. Perfect for a Friday.