Sounds simple, but … maybe not.
There has been a lot of news about the “right” answer for private company gap. There also have been plenty of messages sent to the Financial Accounting Foundation ( FAF ) on the topic … and members of the profession are pretty passionate about the issue.
The AICPA even dedicated a web page to the issue with information about the FAF proposal, FAF roundtables and an outreach toolkit. And, AICPA President and CEO Barry Melancon, CPA, urged private company financial statement preparers, auditors and users to express their support for an independent, authoritative standard-setting board in this video.
But maybe the real issue lies in defining just what a private company is. Could it be this issue that has stymied the FAF? According to Leslie Seidman, in a video interview with Accounting Today editor Bill Carlino, there are six definitions of “private company” in GAAP. And it really doesn’t define private company at all, the definitions are of “nonpublic entity”. Finding this to be at least moderately interesting, my curiosity demanded that I find out what those definitions were.
To start with, we could only find five definitions, and that was confirmed by a manager at FASB. They really aren’t all that different. Basically, private companies (non-public entities) don’t trade in a stock exchange, are required to file financial statements with the SEC, and it’s not a conduit for securities traded in a public market. Sure, there are very subtle differences in the wording of each of these, but – in essence – they all say the same thing. If you want to check for yourself, all you need to do is look at FAS 168, paragraph B3; FAS 126, paragraph 3; FAS 109, paragraph 289; FAS 123 (R), paragraph E1; and FAS 132 (R), paragraph E1.
Go ahead. I DARE you!
So after you hear that one of the impediments to progress on private company standards is six (really five) different definitions of private (non-public) companies AND you see the rather insignificant differences in those definitions, you might ask yourself, what is the holdup here? THAT is a very good question.
Virtually every practitioner (public or management accounting) believes that it is time for meaningful change related to private company financial reporting. It is time for the FAF and FASB to take that bold step.