Task force recommends pursuing changes in GAAP for private companies.After conducting extensive research to ensure the opinions of all constituents were heard, the Private Company Financial Reporting Task Force has unanimously recommended that a process be established to evaluate potential changes to generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting to improve the usefulness of financial reporting for private companies. Specifically, the task force's recently released report said that GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). for private companies should be developed based on concepts and accounting that are appropriate for the distinctly different needs of constituents of that financial reporting. The report also concluded that although GAAP exceptions and other bases of accounting are being used and are sometimes appropriate, these exceptions and other bases of accounting are not the best response to the private company financial reporting findings identified in the study. These conclusions are based on independent research conducted among more than 3,700 lenders, investors, sureties, business owners, financial managers and public accounting practitioners, as well as the perspectives and experiences of the task force members. The task force brought together by the AICPA AICPA See American Institute of Certified Public Accountants (AICPA). consisted of representatives involved with private company financial reporting, including private company business owners and financial managers, practitioners, lenders, investors, and a former standards setter setter: see sporting dog. setter Any of three breeds derived from a medieval hunting dog that would set (lie down) when it found birds so that it and the birds could be covered with a net. Setters have long hair on the ears, chest, legs, and tail. . The task force was led by Jim Castellano, a past AICPA chair. More information about the task force, its process, and its report can be found at www.aicpa.org/members/div/acctstd/pvtco_fincl_reprt/index.htm. Key Findings The task force's research found that the key constituent CONSTITUENT. He who gives authority to another to act for him. 1 Bouv. Inst. n. 893. 2. The constituent is bound with whatever his attorney does by virtue of his authority. groups rated the overall value of GAAP as fairly high in such areas as consistency and in usefulness as a tool in capital allocation decisions Capital allocation decision Allocation of invested funds between risk-free assets and the risky portfolio. . All key constituent groups, however, rated too many GAAP requirements as needing to be more relevant and useful. The task force also found that a majority of each key constituency A constituency is any cohesive corporate unit or body bound by shared structures, goals or loyalty. It can be used to describe a business's customer base and shareholders, or a charity's donors or those it serves. that had an opinion believes it would be useful if the underlying accounting in GAAP reporting were different, in certain instances, for private companies than it is for public companies. Support for this concept has grown considerably over the years. For example, when asked a similar question regarding GAAP differences in 1983, 9% of financial statement users (mostly lenders) agreed and 65% of them disagreed. Now, 51% of lenders/creditors agree and 33% disagree. In light of these research findings, the task force is calling for standards that focus specifically on the information needs of the key constituents of private company financial reporting. The task force expects that the ensuing en·sue intr.v. en·sued, en·su·ing, en·sues 1. To follow as a consequence or result. See Synonyms at follow. 2. To take place subsequently. standards will result in high-quality financial information that is no less in quality than that provided about public companies. Each company and its stake-holders would decide what standards make sense for them. Next Steps The Institute has already taken steps to address its members' needs related to this issue. The AICPA Board of Directors has expressed its support, subject to the input of the AICPA's governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. Council, for the task force's findings and conclusions. The Institute has informed various key constituent organizations about the task force report to give them an opportunity to begin digesting the information. The Institute will work with the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). and the Financial Accounting Foundation on the next steps to address this issue, with the shared and unwavering goal of meeting the needs of the constituents of private company financial reporting. |
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion