Private Company Financial Reporting Standards

1. Private CompanyFinancial ReportingStandards

2. Overview • Private companies play a major role in the U.S. economy • Financial reporting user needs and cost/benefit decisions may be different in the private company arena. • Owners, preparers, users, practitioners and others have expressed concerns about current GAAP relevance to private companies • The AICPA and FASB together are looking into enhancing the standard-setting process for private companies.

3. TheInternationalPerspective • Canadian Accounting Standards Board • International Accounting Standards Board • International Federation of Accountants

4. AICPATask Force Mission • Determine if 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 • Determine if the benefits to constituents of private company financial reporting outweigh the costs of preparing financial statements according to current GAAP

5. Outreach Survey • 3,709 in total • 653 users • 1,212 owners and financial managers • 1,702 practitioners • 142 other

6. ParticipatingOrganizations Lenders American Bankers Association America’s Community Bankers AssociationCommercial Finance AssociationRisk Management AssociationVarious state banking organizations Investors/Owners National Federation of Independent BusinessNational Venture Capital Association Sureties National Association of Surety Bond ProducersSurety Society of America

7. ParticipatingOrganizations (cont’d) Preparers Association for Financial ProfessionalsFinancial Executives InternationalFinancial Executives Network Group National Federation of Independent Businesses U.S. Chamber of Commerce Practitioners State CPA Societies General FASBFederal Reserve Board

8. Task ForceFindings • Aspects of GAAP reporting have high value (e.g., common language, consistency) • Some aspects of GAAP could be improved for the financial reporting of private companies. • There are potential differences in public/non-public needs and cost/benefit decisions.

9. Task ForceConclusions 1) The AICPA and FASB together should consider enhancements in the standard-setting process to accommodate differences between public and private companies.

10. Task ForceConclusions (cont’d) 2) Although GAAP exceptions and other bases of accounting are being used and are sometimes appropriate, the Task Force does not believe they are the best response to the findings identified in this study.

11. Proposed Modelfor Implementation • AICPA and FASB release a proposal describing process changes at FASB designed to meet the needs of private company constituents. • The proposal calls for a jointly sponsored and funded committee to evaluate differences in current and prospective GAAP for private companies. • The committee is staffed by AICPA and FASB.

12. Committee Mission • To consider differences in prospective and existing GAAP accounting standards related to private companies based on user needs and cost/benefit considerations

13. CommitteeRole • Serve as an additional resource to FASB and the EITF before an exposure draft on a standard is issued • Make formal recommendations to FASB on existing and prospective standards

14. ModelFunding • Volunteer approach (part-time Chair) • AICPA and FASB co-fund (except for incremental staff hires) • Annual total cost about $650K • Accounting Research Association support of 50 percent annually over four years

15. www.PrivateCompanyFinancialReporting.org

16. Outreach Plan • Joint AICPA/FASB communication effort • Key organizations and regulators • State societies and AICPA members

17. Questions?