AICPA Calls For GAAP Review To Benefit Private Cos.

With its role in public company reporting diminished in the post-Sarbanes-Oxley era, the American Institute of Certified Public Accountants is turning its attention to private company accounting, recommending standard setters begin a process of evaluating and potentially rewriting Generally Accepted Accounting Principles to make financial reporting more useful for private companies.

An AICPA task force made the recommendation last week while announcing the findings of a study it commissioned in which some 3,700 respondents collectively trounced certain aspects of GAAP. “When asked to rate the relevance or decision usefulness of a broad range of GAAP requirements on a scale of high, medium and low, all constituent group respondents who participated in the random survey rated certain GAAP requirements as being of low relevance or usefulness,” the study report says.

Herz

The AICPA says it took its findings to the Financial Accounting Foundation and the Financial Accounting Standards Board to ask for cooperation in exploring a rewrite of GAAP, and it found a receptive audience but no outright acceptance or rejection of the concept. Via the AICAP, FASB Chairman Robert Herz said the board is open to exploring ways it can improve financial reporting for private companies.

FASB created a task force of its own last fall jointly with the International Accounting Standards Board to determine whether financial statements should be rewritten to make them more useful in assessing an organization’s performance. FASB also launched an initiative last fall to create a single reference source for all existing GAAP literature.

Jack Ciesielski, owner of investment research firm R.G. Associates and a former member of AICPA’s Accounting Standards Executive Committee, said accounting rules shouldn’t distinguish between private and public companies except as appropriate to account for their differences.

“Portraying economics of a firm fairly shouldn’t depend on its size,” he said. “Business becomes more complex every passing year, and so does financial reporting. It’s not that accounting becomes more complex on its own. So do the events it reflects in the reporting.”

FASB Issues Staff Opinions To Clarify Accounting Rules

The Financial Accounting Standards Board has issued one staff position and another proposed position that provide some housekeeping to previously issued accounting rules.

The recent staff position, No. FIN 46(R)-5, focuses on defining “interest” for purposes of consolidation rules. The identification of variable interests, both implicit and explicit, may affect how they are accounted.

Bahnson

Paul Bahnson, professor of accounting at Boise State University and a former FASB member, said the variable interest entities rules post-date the collapse of Enron, where executives “stepped around the consolidation rules by creating separate entities.” The staff position provides greater clarity as to what constitutes an interest, Bahnson said.

The recently proposed staff position focuses on defining “similar,” Bahnson said, for purposes of applying rules about segment reporting. The staff statement clarifies questions that have arisen as to how to determine whether two or more operating segments have similar economic characteristics, FASB said. The proposed staff position is open for comment through April 18.

International Regulators Create Watchdog For Standard-Setters

An international group of financial regulatory agencies has created an oversight board to monitor the public interest activities of the International Federation of Accountants, whose auditing standards influence much of the world outside the United States.

The IFAC’s International Auditing and Assurance Standards Board sets audit standards that are voluntarily adopted and enforced in many countries around the world. It is the audit standard setting equivalent of the International Accounting Standards Board on the global level. In the U.S., audit standards are set and enforced by the Public Company Accounting Oversight Board.

The five international regulatory groups created the Public Interest Oversight Board to oversee IFAC activities that impact the public interest, including audit performance standards, independence and other ethical standards for auditors, audit quality control and assurance standards and education standards. The international regulatory group that created the PIOB included the International Organization of Securities Commissions, of which the U.S. Securities and Exchange Commission is a member.