• Regulatory Advocacy Reports
• Comment Calls
• Comment Letters
• Final Rule Analyses
• NCUA Board Meetings
• Regulatory Advocacy Podcasts
• Additional Resources
• Regulatory Advocacy Home

CUNA Regulatory Comment Call

July 13, 2006

EXECUTIVE SUMMARY

• The Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) have issued a joint proposal (Invitation to Comment: Enhancing the Financial Accounting and Reporting Standard-Setting Process for Private Companies) intended to improve the financial accounting and reporting process for private companies. The Invitation to Comment is part of the exploration by FASB and the AICPA of ways to enhance the value, transparency, and cost effectiveness of financial reporting for private companies.
• Specifically, the joint proposal seeks feedback on proposed enhancements to FASB’s current processes for determining whether differences are needed in prospective and existing accounting standards for private company financial reporting within generally accepted accounting principles (GAAP). The objective is not to create a separate, new set of GAAP requirements for private companies.
• In addition, FASB and the AICPA propose to co-sponsor and co-fund a new committee designed to increase private company input in the FASB standard-setting process. The mission of the committee would be to provide recommendations that will help the Board determine whether there should be differences in prospective and existing accounting standards for private companies.
• In assessing the need for differences for private companies in recognition, measurement, disclosure, and presentation, the FASB will carefully evaluate whether financial reporting standards meet the needs of users of financial statements as well as whether the changes can be implemented by private companies in a cost-effective manner. This cost- benefit analysis will take into account whether the cost of preparing the information outweighs it benefits to users of financial statements (in the case of credit unions, users would include members).
• Comments are due to FASB and the AICPA by August 15, 2006. Please send your comments to CUNA by August 4, 2006. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the FASB-AICPA Invitation to Comment, or you may access it here.

BACKGROUND

• The FASB, the AICPA, and others have periodically studied whether financial accounting and reporting standards should be different for private companies. Until recently, those prior studies indicated that there should not be substantive differences in recognition, measurement, or disclosure solely based on whether a company is privately or publicly held. Some of the reasons frequently cited in opposition to differences in financial accounting and reporting include:
  • Similar economic transactions and events should be reported consistently regardless of the size or ownership characteristics of the reporting enterprise.
  • Different financial reporting standards for private companies could result in additional costs to preparers, accountants, auditors, advisors, and others in the areas of continuing education, authoritative resources, and quality control systems.
  • The users of financial reports of private companies have historically been generally supportive of uniform accounting standards for both public and private companies.
• A study published by the AICPA in February 2005 indicated the support of certain constituent groups (including users) for differences in accounting for private companies. This study, Private Company Financial Reporting Task Force Report, can be found on the ACIPA website.

DESCRIPTION OF THE INVITATION TO COMMENT

Modifications to FASB’s Standard-Setting Process

• To improve the process for receiving quality input, the FASB proposes to implement new procedures to ensure that the financial reporting needs of private companies are adequately addressed. These process changes would include:
  • The FASB staff will seek input specifically from those involved in financial reporting for private companies, including users, preparers, and auditors. This will provide a better understanding of the effect of accounting alternatives and the potential effect of standard-setting activities on private companies.
  • During the standard-setting process, the FASB staff will provide the members of the FASB with alternatives for private companies. These alternatives will be based on differences in user needs and cost-benefit considerations.
  • The FASB will articulate within the basis for conclusions section of standard-setting documents (both Exposure Drafts and final Statements) the basis for its decisions on whether differences should exist for recognition, measurement, disclosure, transition, or effective date for private companies.
  • As part of the FASB’s due process for standard-setting activities on exposure documents, the Board will explicitly request that constituents provide information on the standard’s impact on private companies.
  • Following the FASB’s receipt of comment letters, the FASB will analyze and evaluate whether differences are warranted for private companies.
• To ensure that current and future projects of the FASB have adequate resources to address these changes, the FASB intends to assign staff members with private company financial accounting and reporting experience to current and future projects.

New Committee to Promote Private Company Input into the Standard-Setting Process

• In developing financial accounting and reporting standards, FASB is required to follow an open and thorough due process. The due process procedures include exposure of the FASB’s proposed standards to external review and public comment. The due process also includes public meetings, roundtables, field visits, field tests, liaison meetings, and other vehicles designed to solicit participation and comment. FASB Board members and staff also regularly meet with a wide range of interested parties to obtain their input and to better understand their views. In the past, many of FASB’s due process activities have included active outreach to, and participation by, users, auditors, and preparers of the financial reports of private companies.
• In addition, private companies have representation in some of the groups that are part of the formal FASB structure. The groups include: the Financial Accounting Standards Advisory Council (FASAC), which advises the Board on issues related to projects on the Board’s agenda, possible new agenda items and project priorities; the Small Business Advisory Committee (SBAC), which provides the perspective of small organizations in the development of financial accounting and reporting standards; and the Emerging Issues Task Force (EITF), which promulgates implementation guidance on a timely basis. CUNA is represented on the FASAC and SBAC by Scott Waite, SVP and CFO of Patelco Credit Union in San Francisco and Chair of CUNA’s Accounting Task Force.
• According to the Invitation to Comment, FASB and the AICPA are seeking to form a new 11-person committee to improve the financial reporting process for private companies. The committee will serve as an additional resource to FASB to further ensure that the views of private company constituents are incorporated into the standard-setting process. FASB and the AICPA will jointly select the chair and members of the committee to ensure balanced representation of the significant stakeholder groups affected by such standards.
• The new committee will meet four to six times per year in person in a public forum (and may have additional meetings via telephone as necessary) to evaluate proposals by the FASB or its working groups. It will then make formal recommendations to the Board on those proposals. Further, the committee will evaluate whether existing standards are providing decision-useful information to users of financial reporting information of private companies in a cost-beneficial way. The Committee will then make formal recommendations to the FASB as agenda requests for changes to existing standards. The Committee’s recommendations to the Board will be based on user needs and cost-benefit considerations. The recommendations may include differences for private companies in recognition, measurement, disclosure, presentation, transition, and effective dates.

1. Do you believe the proposed modifications to FASB’s standard-setting process (contained in paragraphs 16-29) will improve the accounting standard-setting process for private companies?
   
   Yes ______ No ______
   
   If yes, in what ways do you feel the proposed changes would improve the standard-setting process for private companies? If no, why not? What other/additional changes would you recommend that might be more effective in improving the standard-setting process?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
2. Do you believe that the proposed changes to FASB’s standard-setting process will help ensure that the financial reporting needs of private companies are met?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
3. The FASB and the AICPA believe that any differences in GAAP for private companies should be based on financial statement user needs and cost-benefit considerations. Do you agree?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
4. The FASB and the AICPA believe that members of the new committee under consideration (except the chair) should not be compensated beyond a reasonable reimbursement of expenses. Do you agree?
   
   Yes ______ No ______
   
   If no, why do you think the new committee members should be compensated?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
5. The FASB and the AICPA believe the committee should set its own agenda and priorities. Do you agree?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
6. Other comments?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---