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FASB to Develop Private Company Decision-Making Framework

Posted 12:00 PM by

The Financial Accounting Standards Board (FASB) issued a discussion paper July 31, 2012, titled, Private Company Decision-Making Framework: A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies, for invitation to comment on the development of a private company decision-making framework. The decision-making framework will set criteria for when U.S. GAAP should be modified to meet the needs of private companies.

Over the past year, the Financial Accounting Foundation (FAF) received a significant amount of pressure to create a separate standard-setting body for private company financial reporting. FAF created the Private Company Council (PCC) in May 2012, which will set its own agenda to discuss potential modifications for private companies. After applying the U.S. GAAP standard against a newly developed framework, the PCC would then vote on any proposed changes (which would be for private companies only). Assuming that the PCC vote passes the recommended change, it will then move to FASB for an endorsement. Once endorsed by FASB, the proposed change would be opened to public comment.

The discussion paper is an invitation to comment on a decision-making framework from which the PCC will determine when U.S. GAAP (as issued by FASB) should be modified or if a full exception is needed to meet  the needs of private company financial statement users. 

The development of a decision-making framework for private companies is intended to identify differential information needs of private companies and their users, and to reduce the costs and complexity of preparing U.S. GAAP financial statements. Preliminary FASB staff recommendations on the decision-making framework covers the following five areas in which financial accounting and reporting guidance might differ for private companies:

  1. Recognition and measurement
  2. Required disclosures
  3. Presentation of information
  4. Effective dates of new standards
  5. The transition method used once a new standard has been issued.

The invitation to comment on the FASB discussion paper is seeking public comment (mainly from private company financial statement users and preparers) on the new framework until October 31, 2012.

About the Author

Justin Hayes is a director in Katz, Sapper & Miller’s Audit and Assurance Services Group as well as being a member of the Not-for-Profit and Governmental Services Groups. Justin works with clients to help them avoid risk and maximize efficiencies by keeping an eye on their bottom line and helping ensure accurate financial reporting. Connect with him on LinkedIn.

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