Private companies may get their own panel to steer accounting standards, but not the separate standard-setting process they were hoping for, under a new plan proposed by the Financial Accounting Foundation.

FAF's board of trustees unveiled its proposal for how to address a growing demand among nonpublic entities and their accountants for accounting rules that are more geared to their needs and circumstances. The proposal would establish a new Private Company Standards Improvement Council to identify, propose, and vote on improvements to accounting rules with private companies in mind, but those improvements would require ratification by the Financial Accounting Standards Board to become effective.

FAF says the council would be made up of 11 to 15 members who would deliberate and vote on specific exceptions or modifications to U.S. Generally Accepted Accounting Principles for private companies. Any changes would be subject to public comment, further deliberation by the council, then ratification by the FASB in order to become authoritative. The new council would replace FASB's existing Private Company Financial Reporting Committee, which currently acts as an advisory body to the FASB with no authority.

Teresa Polley, president and CEO of FAF, said many of the concerns expressed by private companies in recent years, especially around complexity, are shared by public companies. “The approach outlined by the trustees would ensure that all constituents would have the potential to benefit from improvements that reduce the complexity of accounting standards – public as well as private investors, lenders and others,” she said.

FAF says FASB has made some significant changes lately to get private company stakeholders more entrenched into the standard setting process to assure those views are represented in making final decisions on standards. To further address private company concerns, FAF considered creating a separate standard-setting body, as recommended by the Blue Ribbon Panel on Standard Setting for Private Companies, but worried it would lead to two separate sets of accounting standards.

Barry Melancon, president and CEO of the American Institute of Certified Public Accountants, was quick to criticize FAF's proposal. “We are profoundly disappointed,” he said, in a joint statement with AICPA Chair Paul Stahlin. “FAF has proposed a solution that continues to miss the mark.” Stahlin said the AICPA will ask members to continue to press for a separate standard-setting body in response to FAF's proposal.

The Blue Ribbon Panel recommendation came from a broad range of leaders in financial reporting, including lenders, investors, owners, preparers, and accountant, Melancon said, and the FAF received some 3,000 letters largely supporting the recommendation for a separate standard-setting body. FASB's focus has long been on the needs of public companies, he said. “The pent up frustration we are witnessing by the private company constituency is a direct result of that public company focus and not seeing that differences can be and are appropriate for private companies and their financial statement users,” he said.

FAF is accepting comments on the proposal through Jan. 14, 2012.

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