Private Company Financial
Reporting
Why the Effort?
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Given - Private companies importance to
U.S. economy
Given – Growing concerns about GAAP
expressed by practitioners and other
stakeholders’ of private company
reporting
Task Force Goal - Discover the truth
Underlying Principle - Protecting GAAP
as the gold standard for financial
information
Task Force Mission


Determine whether or not general purpose
financial statements of private, for-profit
entities, prepared in accordance with generally
accepted accounting principles (GAAP), meet
the needs of all constituents of that reporting.
Understand whether or not the cost of providing
all that is required in GAAP financial statements
is justified by the related benefits to private
company constituents.
Scope
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For-profit, privately-held companies
No size limitation
Grassroots outreach is U.S. focused
•
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With understanding of what has been
done internationally
NOT about broader-based information
needs, such as non-financial
performance indicators
Task Force Composition
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Users
Former standard setter (FASB/FASAB)
Owners/financial executives
Academic
Practitioners
Target Key Constituents
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External users – investors, lenders,
sureties
Business owners and management
Non-management owners
Practitioners
Others
Accomplishing Mission
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Discussion Paper
Focus groups
Research
Key: neutral; hard-driving; and factual
summaries of viewpoints.
Survey Approach
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Random telephone sampling
Broad outreach for any and all
Questions same in both survey forms
Independent market research firm
Random & Broad Outreach Survey
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3,709 in total
653 users
1212 owners and financial managers
1,702 practitioners
142 other
Participating Organizations
Lenders
American Bankers Assoc
America’s Community Bankers Assoc
Commercial Finance Assoc
Risk Management Assoc
Various state banking organizations
Investors/owners
National Federation of Independent Business
National Venture Capital Assoc
Sureties
Nat’l Assoc of Surety Bond Producers
Surety Society of America
Participating Organizations (cont)
Preparers
Association for Financial Professionals
Financial Executives International
Financial Executives Network Group
NFIB
US Chamber of Commerce
Practitioners
State Societies
General
FASB
Federal Reserve Board
TF Findings

“Attributes” of GAAP reporting have high value
according to all constituents (e.g., common
language, consistency, etc).

Too many GAAP-specific requirements lack
relevance or decision usefulness according to
all constituents.

A majority of each of the constituent groups
who had an opinion believe it would be useful if
underlying accounting in GAAP reporting were
different, in certain instances, for public vs.
non-public companies. (One exception –
sureties in broad outreach)
Detailed Findings Comparisons
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External Stakeholders Q16a: Average rating of value of private company
GAAP financial statements in ability to use them: As a tool in making
investment or credit decisions
For Scientific: n=99 for Creditor/Lender, 101 for Investor/Venture Capital,
and 95 for Surety/Bonding.
For Broad Outreach: n=211 for Creditor/Lender, 40 for Investor/Venture
Capital, and 91 for Surety/Bonding.
[Findings are based on the average scores on a scale of 1 (Low) to 3 (High)]
2.9
Surety/ Bonding
Investor/ Venture Capital
2.3
Random
2.8
Creditor/ Lender
Surety/ Bonding
Investor/ Venture Capital
Creditor/ Lender
2.6
2.5
2.6
Broad Outreach
Specific GAAP Requirements
-- Random
Relevance/Decision Usefulness of specific GAAP requirements by mean scores.
Table is sorted in descending order for Owner/Manager firms with less than $5 Million in revenue.
Medium/High Relevance (above 2.0)
Medium Relevance (2.0)
Low Relevance (less than 2.0)
Owner/Manager by
Revenue (Millions)
<$5M
Accrual basis of accounting
Cash flow statement
Comprehensive income measurement
Classification of liabilities & equity
Fair value basis of measuring assets & liab.
Post retirement and retirement plans
Deferred income taxes
Leases
Guarantees
Intangibles
Variable interest entities
Share-based payments
$5$25M
>$25M
Practitioners by Number of
Partners
5 or
less
6-10
11-20
21 or
more
External Stakeholders by
Type of Firm
Creditor/
Lender
Investor/
Venture
Capital
Surety/
Bonding
Detailed Findings Comparisons
Would it be useful if the underlying accounting in GAAP reporting were
different, in certain instances, for public vs. non-public companies?
Business & Industry
Random
38.0%
31.0%
19.0%
Broad Outreach
22.0%
29.0%
17.9%
11.1%
9.1%
No answer
22.9%
23.1%
No
20.8%
Yes
24.0%
61.3%
50.0%
38.0%
66.0%
67.8%
49.0%
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Detailed Findings Comparisons
Would it be useful if the underlying accounting in GAAP reporting were
different, in certain instances, for public vs. non-public companies?
Practitioners
Random
4.7%
14.0%
6.0%
11.0%
1.0%
9.0%
Broad Outreach
1.0%
3.8%
9.3%
21.0%
5.2%
9.1%
2.5%
6.7%
5.6%
27.9%
No answer
No
Yes
81.3%
83.0%
90.0%
86.7%
78.0%
85.3%
90.8%
66.5%
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Detailed Findings Comparisons
Would it be useful if the underlying accounting in GAAP reporting were
different, in certain instances, for public vs. non-public companies?
External Stakeholders
Random
16.0%
33.0%
Broad Outreach
No answer
8.9%
25.0%
26.8%
22.0%
30.8%
Yes
40.6%
24.4%
36.0%
35.2%
39.6%
51.0%
53.7%
50.5%
39.0%
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No
37.6%
28.6%
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1983 FASB Survey Results on
Differences Question

“Should GAAP permit certain areas to be
measured differently by private
companies than by public companies?”
•
•
•
Practitioners – yes (57%); no (28%)
Managers – yes (35%); no (37%)
Users – yes (9%); no (65%)
Detailed Findings Comparisons
Would it be useful if the underlying accounting in GAAP reporting were
different, in certain instances, for public vs. non-public companies?
External Stakeholders
1983
Random
26.0%
No answer
8.9%
16.0%
25.0%
33.0%
Yes
40.6%
36.0%
65.0%
51.0%
50.5%
39.0%
9.0%
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TF Conclusions
1) GAAP for private companies should be
developed based on concepts and
accounting that are appropriate for the
distinctly different needs of constituents
of that financial reporting.
TF Conclusions (cont)
2) Although GAAP exceptions and other
bases of accounting are being used and
are sometimes appropriate, the TF does
not believe that these exceptions and
other bases of accounting are the best
response to the findings identified in this
study.
TF Conclusions (cont)
3) Fundamental changes should be made
in the current GAAP standard setting
process to ensure that the financial
reporting needs of private company
constituents are met.
TF Recommendation


Collaborative effort with key constituents
Outreach to FAF/FASB
Recent Developments

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AICPA Board supports TF findings and
conclusions
AICPA governing council supports via
resolution
Working group with FASB
FASB/AICPA Working Group

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Discussed several model processes by
which possible differences can be
identified
Discussed criteria by which differences
would be appropriate
Any model process would be exposed to
the constituents of private company
reporting
Next Steps



Working group to reach agreement on
details of proposed model process
Discussion by AICPA and FASB
leadership
Exposure to constituents of private
company reporting
What do you think?