Private Company Financial Reporting Committee Update

Transcription

1 Private Company Financial Reporting Committee Update Judith H O Dell CPA CVA Maryland CPA Summit June 29, 2010 The following presentation reflects my own opinions and not those of the Financial Accounting Standards Board

2 Overview Forces affecting private company accounting PCFRC Efforts FASB Projects worth watching Blue Ribbon Panel on Private Company Accounting Forces Affecting Private Company Accounting FASB/IASB Convergence Projects- PCFRC early involvement to make sure private co issues are considered Changes in size of FASB Board FASB emphasis on public co investor needs AICPA recognition of IFRS as GAAP Increasing acceptance by users of reports with GAAP exceptions

3 More Forces SEC Roadmap for IFRS adoption IASB issuance of IFRS for Small and Medium Sized Entities (SME) Efforts in other countries for separate private company accounting Recent Deloitte survey: 51% of respondents believed there should be separate accounting standards for private companies Events and Trends in Other Countries Canadian Accounting Standards Board published ED Accounting Standards for Private Enterprises UK Accounting Standards Board proposing three tier system of financial reporting Japan- Formed Council on Accounting of Unlisted Companies to determine if separate set of accounting standards for unlisted companies should be put in place IFRS for SMEs being used and debated in many areas of the world

4 IASB IFRS for Small and Medium Entities Issued July, 2009 Intended for entities that do not have public accountability and do publish general purpose financial statement Self Contained- 230 pages Based on full IFRS, with exemptions and simplifications Download at AICPA Guidance on SME Published July 13, 2009 on No barriers to use in US- but users need to be consulted IFRS is GAAP- not an OCBOA Guidance in audit, review and comp literature on how to report

5 AICPA Guidance on SME Some private companies may find IFRS for SMEs attractive alternative to US GAAP Increased comparability if looking to do business overseas IASB has published some training materials PCFRC Funded by FASB Chair selects committee members Committee consists of 4 users, 4 preparers and 4 practitioners from various size companies/firms Users are two commercial lenders, one surety and one venture capitalist

6 Focus of PCFRC Consideration of user needs and costs/benefits to determine whether differences in GAAP for recognition, measurement, presentation, disclosure, and effective dates are needed for private companies PCFRC Efforts Attempts to change existing standards (FIN 46R and FIN 48) met with mixed results Have been involved early in current FASB projects and have made known private company issues Have been educating FASB staff on differences between private company and public company user needs Issued 10 Recommendation Letters to FASB in 2009

7 Recent FASB Efforts to Address Private Company Accounting Issues FASB Codification July 2009 Hosted panel of users of private company financial statements to provide input on FIN 48- resulted in some disclosure differences Appointment of Assistant Staff Director to oversee private company and NPO issues FAF chair listening tour summer 2009 Current FASB Steps in Nonpublic Entity Consideration during the Standard Setting Process Seeking input from those specifically involved in nonpublic entities Identifying/ providing alternatives for nonpublic entities Asking questions in proposed Accounting Standards Updates (ASUs) Evaluating what has been learned during public exposure period and determining whether differences are warranted Articulating in the basis for conclusions of proposed and final ASUs whether differences should exist [affirmative requirement here is new] Monitoring during implementation period whether there are any unanticipated difficulties/ issues 14

8 Current Options for Private Companies Absent any National Effort to Address Private Company Accounting Continue to follow US GAAP (especially NPOs as IFRS does not address NPO issues) Use US GAAP with exceptions Convert to full IFRS Adopt IFRS for Small and Medium-Sized Entities Use tax or cash basis of accounting FASB/IASB Joint Projects with Private Company Impact Financial Statement Presentation Revenue Recognition Leases Financial Instruments with Characteristics of Equity Loss Contingencies Financial Instruments Fair Value

9 Current Status of Deliberations and Implications All projects scheduled for completion by 6/11 Unprecedented level of standard setting Challenges preparers ability to implement Even if all projects completed, GAAP and IFRS will not be fully converged PCFRC Letter to FAF urging consideration of private company accounting issues Factors influencing PCFRC thinking: Difficulty in getting FASB to provide differential standards- FIN 48 and FIN 46R Recognition that private company users have different needs than investors Increasing complexity of standards Issuance of SME document and efforts in other countries to address private companies

10 Blue Ribbon Panel Mission Address how accounting standards can best meet the needs of users of U.S. private company financial statements. The scope of the panel does not include not for profit organizations 19 What s Different about this Panel? Committee is made up of users (lenders, business owners, private equity, venture capitalist, surety), preparers and practicing CPAs Strategic purpose to determine what the future standard setting process should be Committee sponsored by FAF, AICPA, NASBA 20

11 Objectives of Work (1) Understand the current standard-setting structure and process; (2) Understand the needs of users of private company financial statements; (3) Understand the cost benefit considerations of GAAP financial statements for preparers; (4) Identify alternative structures and standard-setting processes; (5) Determine if the current process should be modified for the private companies; (6) Provide recommendations to the FAF Trustees 21 Blue-Ribbon Panel s April 12, 2010 Meeting Focus was understanding the needs of users of private company financial statements Users of private company financial statements primarily include lenders, other creditors, bonding and credit agencies, and business owners Users like the gold stamp of GAAP but would be open to a different GAAP Users like GAAP for consistency, comparability and assurance Most Users adjust the financials to meet their end needs Companies seem to be taking more exceptions to GAAP 22

12 Blue-Ribbon Panel s May 14, 2010 Meeting Continuation from April 12 th meeting on user needs Testimonies from a corporate director and credit rating agency perspectives Understanding preparer and practitioner concerns about U.S. GAAP Many agreed that there are broad-based concerns with the current system Others argued the need for change, at least from a user perspective, has not been heard Need to identify pros and cons for dual set of standards including the unintended consequences With the right structure and resources it may be possible to have the same Board set both public and private company GAAP 23 Blue-Ribbon Panel s May 14, 2010 Meeting Overview of alternatives as seen in other countries Canadian GAAP for Private Enterprises Users like Canadian GAAP but recognized preparer concerns Users believed more disclosure is better but can always ask for additional information and usually receive it Started with existing Canadian GAAP, focused on key issues, and eliminated unnecessary material and disclosures Will likely migrate to a more IFRS-based platform over time 24

13 Blue-Ribbon Panel s May 14, 2010 Meeting Proposal for Private Companies in the United Kingdom Three-tier approach (IFRS as adopted by the EU, IFRS for SMEs, and Financial Reporting Standard for Smaller Entities [FRSSE]) Issues surrounding full IFRS and IFRS for SMEs still to be addressed Blue-Ribbon Panel s May 14, 2010 Meeting Heard Update on IFRS for SMEs Approx 61 jurisdictions have either adopted or stated a plan to adopt IFRS for SMEs within the next three years South Africa, Hong Kong and many Caribbean countries have adopted European Commission is currently consulting on the IFRS for SMEs Push back from countries such as Germany and France where statutory GAAP is quite different Australia is considering disclosure exemptions only Canada has rejected and went with homegrown approach 26

14 Blue-Ribbon Panel Next Steps Discussion of next steps Staff will compile position paper that addresses the problem the Panel is trying to solve Identification of various alternative models to current U.S. GAAP Models will address infrastructure questions such as funding Models will be discussed at July 19 th Panel Meeting Public input will be gathered after next meeting 27 Some Possibilities for BRP to consider Adopt SME US adaption of IFRS for SME IFRS with differences for private companies Separate US private GAAP revised US GAAP maintained and updated in the future

15 How Can You Participate? Become a member of our Resource Groupsign up on website and receive notification of meetings and meeting summarieswww.pcfr.org Resource Group will be tapped for special task forces and input on projects Attend meetings and speak during open mike session chair with ideas and opinions Questions? for info on BRP judyodell@dmv.com