PRIVATE COMPANY STANDARDS – IS IT TIME?

PRIVATE COMPANY STANDARDS – IS IT TIME?Presentation for:Maryland Association of CPAsCPA SummitJune 3, 2011BWI Hilton

Presentation for:Maryland Association of CPAsCPA SummitJune 3, 2011BWI Hilton

Our PanelistsAll members of the MACPA

Private Company Standards Task Force

Our PanelistsAll members of the MACPA

Private Company Standards Task Force

Skip Falatko, CPA – MACPAArt Flach, CPA – Grant ThorntonJoselin Martin, CPA – Hayles & Howe,

IncCarl Kampel, CPA – Ellin & Tucker,

Chtd

Skip Falatko, CPA – MACPAArt Flach, CPA – Grant ThorntonJoselin Martin, CPA – Hayles & Howe,

IncCarl Kampel, CPA – Ellin & Tucker,

Chtd

MD ComptrollerMD Comptroller

CAQ

US Treasury

MD Comptroller

Courtesy of the Maryland Association of CPAs – 2008 edition Drawing by Carol Kirwan, CPA

Public Company Private Company Int’l Company

FinancialReporting

Audit /Attest PerformanceStandards

Code of Conduct

Another way to look at standards & oversight

State Oversight & Enforcement of CPA LicenseCPALicensure

SECFASB

FASBPCFRC

IASBIFRS & SME

PCAOB

AICPAASB, ARSC,

PRBIAASB

AICPAPEEC

AICPAPEEC

IFAC

FAF

FASB

PCFRC

GASB

The PlayersThe PlayersSEC

& State Boards & State CPA Societies

BRP

Additional Background InfoAdditional Background Info

15,000 issuers and 28.5 million private companies but GAAP driven by public company issues

Small businesses employ more than half of all private sector workers

Private companies and their financial statement users have information needs that are different than public companies

Similar Issue Outside the US TooSimilar Issue Outside the US Too

Concerns About Private Company Financial Reporting Include:

Concerns About Private Company Financial Reporting Include:

Too many GAAP-specific requirements not useful or relevant for private companies

Greater FASB emphasis on public companies

Increased cost, complexity, time-consuming using full GAAP

Use of OCBOA raises the issue of what’s “generally accepted”

Too many GAAP-specific requirements not useful or relevant for private companies

Greater FASB emphasis on public companies

Increased cost, complexity, time-consuming using full GAAP

Use of OCBOA raises the issue of what’s “generally accepted”

U.S. Answer: Blue Ribbon Panel on Private Company Financial ReportingU.S. Answer: Blue Ribbon Panel on

Private Company Financial Reporting

Address how accounting standards can best meet private company financial statement users’ needs

Determine future of GAAP standard-setting process for private companies

Sponsored by AICPA, FAF and NASBA

18 panel members: cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors

Blue Ribbon Panel’s Conclusions

Blue Ribbon Panel’s Conclusions

A problem exists that needs resolution

Recommendation #1 - Enhance GAAP for private companies by making significant modifications, where warranted

Recommendation #2 - FAF should create a separate private entities accounting standards board

A problem exists that needs resolution

Recommendation #1 - Enhance GAAP for private companies by making significant modifications, where warranted

Recommendation #2 - FAF should create a separate private entities accounting standards board

Other Key BRP RecommendationsOther Key BRP Recommendations

Framework for differential decision criteria

3-5 year sunset review to determine effectiveness of new board

5-7 board members

$4-5 million annual budget

FAF “Working Group”FAF “Working Group”

FAF created a “Working Group” on March 4, 2011

Comprised of FAF Trustees and FAF Staff

Added non-profits to the mix

FAF created a “Working Group” on March 4, 2011

Comprised of FAF Trustees and FAF Staff

Added non-profits to the mix

90.87% of MACPA members believe we need Private Company Standards

90.87% of MACPA members believe we need Private Company Standards

Insights form the Spring & Fall, 2010 PIU / town hall meetings covering 2,000+ members

Judy O’Dell chair of FASB PCFRC shared her perspective

Judy O’Dell chair of FASB PCFRC shared her perspective

The MACPA requested that private company’s be exempt from Fin 48 and Fin 46Rin September, 2008. The PCFRC’s recommendations were ignored by FASB.

MACPA’s responseMACPA’s response

MACPA sent comment letter to FAF on December, 2010 for initial survey

MACPA Chair Kimberly Ellison-Taylor appoints special Accounting Standards Task Force

Accounting Standards Task Force held meetings from Jan – Apr, 2011

MACPA sent comment letter to FAF on December, 2010 for initial survey

MACPA Chair Kimberly Ellison-Taylor appoints special Accounting Standards Task Force

Accounting Standards Task Force held meetings from Jan – Apr, 2011

MACPA Accounting Standards Task Force – The power of “We”MACPA Accounting Standards

Task Force – The power of “We”

Chair:    

Art Flach Grant Thornton Public accounting firm

MACPA Facilitators:    

Tom Hood MACPA CEO & Executive Director Non-Profit

Jackie Brown MACPA COO Non-Profit

Skip Falatko MACPA CFO Non-Profit

Task Force Members:    

Ernie Paszkiewicz Gross Mendelsohn & Assoc. Public accounting firm

Rob Tuggle BB&T Banking

Bill Ziegler BB&T Banking

Carl Kampel Ellin & Tucker Public accounting firm

Joselin Martin Hayles & Howe Private company

Liz Gantnier Stegman & Co. Public accounting firm

Bob Tarola Right Advisory Public company consultant

Mike Manspeaker Smith Elliott Kearns & Company, LLC Public accounting firm

Ken Kelly McCormick Public company

Don McConnell KCI Private company

Jim Canalichio Dixon Valve Company Private company

Jim Jenkins Stout Causey & Horning Public accounting firm

Al DeLeon DeLeon & Stang Public accounting firm

Debra Busk DeLeon & Stang Public accounting firm

Charles Postal Santos, Postal & Co. Public accounting firm

Jim McKinney University of Maryland Educator

OJ Phillips Small Business Administration Government

Our guiding principlesOur guiding principles

Draft conclusions – approved by MACPA Board

Draft conclusions – approved by MACPA Board

Private Company Standards need to be addressed (costs, complexity, OCBOA)

Current structure is not working – PCFRC recommendations were not addressed, prior studies indicate issue

Other jurisdictions around the world recognizes needs of private company users are different

Private Company Standards need to be addressed (costs, complexity, OCBOA)

Current structure is not working – PCFRC recommendations were not addressed, prior studies indicate issue

Other jurisdictions around the world recognizes needs of private company users are different

TASK FORCE ISSUESTASK FORCE ISSUES

Concept of differences in recognition and measurement

Separate Board

Funding source to ensure independence Collaboration with FASB How much divergence Disparity of interests, small vs. large

Concept of differences in recognition and measurement

Separate Board

Funding source to ensure independence Collaboration with FASB How much divergence Disparity of interests, small vs. large

TASK FORCE ISSUESTASK FORCE ISSUES Effect of increasing complexity

Revenue Recognition Leases IFRS

Is it too much?

How does everyone become knowledgeable – Bankers, sureties and other users

Effect of increasing complexity

Revenue Recognition Leases IFRS

Is it too much?

How does everyone become knowledgeable – Bankers, sureties and other users

What is the future role of the FASB?

Input and support to IASB.Advancing considerations of U.S.

perspectivesIncorporating IFRS into U.S. GAAP

through an endorsement processEducating U.S. constituents about

IFRS

What is the future role of the FASB?

Input and support to IASB.Advancing considerations of U.S.

perspectivesIncorporating IFRS into U.S. GAAP

through an endorsement processEducating U.S. constituents about

IFRS

TASK FORCE ISSUESTASK FORCE ISSUES

New DevelopmentsNew Developments

AICPA launches Private Company Standards resource center

http://www.aicpa.org/privateGAAPFASB offers webcast:

FASB Update for NonPublic Entities (Private Companies)

AICPA launches Private Company Standards resource center

http://www.aicpa.org/privateGAAPFASB offers webcast:

FASB Update for NonPublic Entities (Private Companies)

Our view is that we applaud the efforts of FASB to focus on needs of private companies and that there was a formal structure with the PCFRC that was ignored. It is time to give this new approach a chance with a re-visit in five (5) years.

ConclusionConclusionOn June 2, 2011 the MACPA Board

of Directors unanimously adopted the report & recommendations of our Accounting Standards Task Force, urging FAF to move forward with the separate Private Company Standards Board and the recommendations in their Blue Ribbon Panel report.

On June 2, 2011 the MACPA Board of Directors unanimously adopted the report & recommendations of our Accounting Standards Task Force, urging FAF to move forward with the separate Private Company Standards Board and the recommendations in their Blue Ribbon Panel report.

http://www.macpa.org/Content/26146.aspx

http://www.slideshare.net/thoodcpa/macpa-private-company-standards-whitepaper

MACPA Announcement

MACPA whitepaper can be viewed & downloaded here:

Next StepsNext StepsDistribution and

communicationEducation & awareness of

our members and the small business community

Make our voices heard at the FAF

Distribution and communication

Education & awareness of our members and the small business community

Make our voices heard at the FAF

Skip Falatko, CPADirector of Finance

Maryland Association of CPAsBusiness Learning Institute

(443) 632-2322E-mail skip@macpa.org

Web http://www.macpa.orgBlogs http://www.cpasuccess.comhttp://www,bizlearningblog.com

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Tom Hood, CPA.CITPCEO

Maryland Association of CPAs

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