FASB Begins Development of a Framework for Private Companies

The FASB has added a new project to its technical plan: Differential Standard-Setting Framework for Private Companies. The objective of this project is to develop a framework (a set of decision criteria) for making decisions about whether and when to modify the requirements for accounting standards that apply to private companies. The FASB does not initially intend for the framework to result in fundamentally different financial statements between private and public companies. Leading up to this new project, the FASB staff completed an initial assessment regarding how and why the needs of the users of private company financial statements differ from those of users of public company financial statements. The initial assessment also considered the cost-benefit differences of financial reporting between private and public companies. The FASB has formed a new 10-member Private Company Resource Group to review the accuracy and completeness of the staff’s assessment and to advise the staff in developing the decision-making framework. This Private Company Resource Group includes users, preparers, and auditors of private company financial statements, along with an academic representative and the chairman of the Private Company Financial Reporting Committee. The initial step for the project is to issue a discussion paper, which is currently anticipated to be released in the 4th quarter of 2011. As part of the project, the FASB will eventually expose for public comment a draft of the proposed decision-making framework to gather input from all interested parties. Creating a private company standard-setting framework was one of the key recommendations made in a report by the Blue Ribbon Panel on Standard Setting for Private Companies released in January 2011 to the Board of Trustees of the Financial Accounting Foundation, which is the FASB’s oversight organization. Practitioners may follow the status of this project on the FASB website at www.fasb.org (select the “Projects” link at the top of the web page).