On February 2009, the Financial Accounting Foundation, FAF, American Institute of Certified Public Accountants, AICPA, and the National Association of State Boards of Accountancy, NASBA, created the Blue-Ribbon Panel (Campbell, 2011). The purpose of the Blue-Ribbon Panel was to explore the needs of private company financial statement users and make recommendation on how to improve the process for setting standards for private companies (Campbell, 2011). The Blue Ribbon Panel consisted of financial reporting constituencies, financial statement preparers, auditors, and regulators (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011).
The Blue-Ribbon Panel’s found several weaknesses in the current standard-setting process. The first weakness is that “current standard-setting process is flawed and has an insufficient understanding of the needs of users of private company financial statements and an insufficient weighing of the costs and benefits of GAAP for use in private company financial reporting” (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). Blue-Ribbon Panel’s believe that the current standards are lacking relevance to private companies such as variable interest entities, uncertain tax positions, fair value measurements, and goodwill impairment which I believe to be true (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). Besides talking within the panel, the Blue-Ribbon Panel also reached out to several preparers and users of private company financial statements. These individuals were concerned with “private company financial statements often lack relevance to users, standards have become increasingly complex, the pace of the standard-setting process has increased, costs often exceed benefits, there has been an increase in qualified opinions and the use of other comprehensive basis of accounting (OCBOA) where possible” which I also believe that these concerns need to be address (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011).
I personally believe that Blue-Ribbon Panel’s recommendations would be extremely helpful to private business if implemented. Their recommendations were that “U.S. GAAP should have exceptions and modifications for private companies and those exceptions and modifications should be determined by a separate private company accounting standards board” (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). According to the Blue-Ribbon Panel, the private company standards-setting board would have the ultimate authority to approve the exceptions and modifications (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). Besides the recommendations, the Blue-Ribbon Panel’s members thought that the industry “should be allowed to dictate whether private entities chose to follow” the new private company’s standards determined by the panel or FASB GAAP (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). I also believe that industry that the private company does business in should have the ability to determine what standards companies must compile to since the industry would know what is useful than the standard setters. In my opinion, having a separate accounting standard board for private companies will make the process of monitoring FASB’s projects and giving feedback would become more efficient and effective.
The report issued by the Blue-Ribbon Panel has had a positive effect on the financial reporting for private companies. In my opinion, the most influential effect is that the recommendations started a new phase of reviewing the “adequacy and effectiveness of the FASB’s efforts in setting standards for the private company and non-profit sectors in the United States” (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011). To start off this new phase, the FAF established the Trustee Working Group in 2011 (Campbell, 2011). The Trustee Working Group is responsible for addressing the accounting standards for private entities in addition to non-for-profit entities (Campbell, 2011). The AICPA President also mentioned that there has been several changes in place to make the standard setting process be more responsive to private companies by correcting the issues that the panel stated were insufficient (Accounting Battle for the Ages – Big GAAP, Little GAAP, 2011).
References
Accounting Battle for the Ages – Big GAAP, Little GAAP. (2011, April 6). Retrieved from Accounting Research Mangaer : http://tax.cchgroup.com/downloads/files/email/pfx/aasolutions-temp/CloserLook-BigLittleGAAP-Apr-2011.pdf
Campbell, B. (2011, September 20). Big GAAP VS Little GAP – Where are we at? Retrieved from CPA’s Calculating the Latest in Audit & Accounting News: http://www.hhcpa.com/blogs/audit-accounting/big-gaap-vs-little-gaap-where-are-we-at/
ashleyzoeller 