The notion of different accounting rules for private vs. public companies is starting to gain some traction as a “blue ribbon” panel studying the issue is developing a recommendation for exceptions for private companies.

The Financial Accounting Foundation, which oversees the development of accounting rules by the Financial Accounting Standards Board, formed the panel in cooperation with the American Institute of Certified Public Accountants and the National Association of States Boards of Accountancy. AICPA is the leading association of CPAs writing professional standards for accountants while NASBA members oversee the licensing of CPAs at the state level.

The FAF said a majority of the blue ribbon panel members support a proposal to call for a new standard-setting process for private companies and to allow the voluminous library of Generally Accepted Accounting Principles to be scaled down for private companies. The panel is developing a draft discussion report that it will review at its December meeting with plans to issue a full report to the FAF in January 2011.

The FAF said it would deliberate the proposal and develop an action plan that would be published for public comment before being implemented. “It’s important that our trustees have a thorough understanding of the issues affecting private company financial reporting as they consider the entire standard-setting system,” said FAF President Terri Polley in a statement. Polley said the FAF is “ready to carefully consider improvements” in the way accounting standards are written.

Dan Noll, director of accounting standards at the AICPA, said the panel is not planning to recommend a separate set of accounting standards for private companies, but a single GAAP model with exceptions or differences carved out for private companies. It’s a concept that has been debated for decades, he said, but is gaining favor now because a majority of financial statement users are starting to see some logic to it.

Based on various indicators, “we have hit the tipping point,” said Noll. “You now have users, preparers, and CPA firm practitioners who are now saying we need more differences for private companies in GAAP standards. The whole debate has now shifted to the point where there’s a clear recognition that there’s a problem here that needs solving.”

Noll said panel members – who represent a cross-section of investors, lenders, owners, preparers, auditors and regulators with a stake in financial reporting—say there are too many current accounting rules that do not reflect the needs or interests of private company constituencies.

The International Accounting Standards Board has already developed a slimmed-down rulebook for small and medium-sized entities. After a five-year development process, the International Accounting Standards Board published an International Financial Reporting Standard in July 2009 specifically geared to small and medium-sized entities. IASB said 95 percent of all companies following IFRS can be described as smaller or medium-sized entities.