Private companies have often complained that the generally accepted accounting principles, the system used by publicly traded firms such as those in the S&P 500, are overly burdensome. Prvate firms seldom have the battalions of accounting staff required to keep up. Furthermore many such rules simply don’t apply to them. But nonetheless, they are expected to follow them when preparing financial statements for lenders, banks, bonding companies and regulators—all of which adds unnecessary cost.
The Private Company Council, a foundation that overseas rule-making is creating a panel with the aim of making it easier and simpler for private firms to follow and comply with accounting standards. According to a Wall Street Journal report, the Council will work with the Financial Accounting Standards Board (FASB) to carve out exceptions and create exemptions for the country’s 28 million private companies.
The panel will review areas for which accommodations are warranted. For example, measures that involve fair value of assets or valuations, or rules that may require when off-balance sheet special purpose entities need to be brought onto the balance sheet, may be modified subject to the approval of the Financial Accounting Standards Board.
Despite some earlier concerns, the American Institute of Certified Public Accountants (AICPA), the country’s largest trade group and official voice of the accounting profession, now says it supports efforts by the Private Company Council. The new review panel will have nine to 12 members appointed by the foundation, with representative from private companies and their auditors. Time will tell if such a move will succeed in lessening internal cost burdens on privately held firms, but hope persists.