State Board Report

June 2010

Financial report users, preparers, standard setters and others spoke out at the May 14 meeting of the AICPA/FAF/NASBA Blue Ribbon Panel (BRP) on Standard‐ Setting for Private Companies. Financial Accounting Foundation President Terri Polley observed, “I think this group was formed to explore the needs of users – and what I hear is that the users cope.” As this second meeting of the BRP was concluding (see sbr 5/10), she commented, “The noise comes from the preparers.” She called for a two‐page explanation of the reasons why there should be alternative standards for private companies. Ms. Polley also noted that as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) “have their convergence agenda in flux right now,” drawing the FASB into the BRP’s discussions would be appropriate. BRP Chair Rick Anderson agreed that it is necessary to articulate the problem that needs to be solved at the outset of the Panel’s discussions.

The Panel heard from Tricia O’Malley, chair of the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants, who explained that through a four – year process Canada had decided to develop different standards for different types of companies. “There was a strong consensus that what was applicable to public companies was just not working for private,” she reported. “We recognized that the cost of getting the information for these entities outweighed the benefit.” Starting with existing Canadian GAAP, the AcSB made changes for private companies. They worked with an academic advisory council as well as a user advisory council, as educators feared the problems of teaching several sets of standards. Ms. O’Malley said the resulting private enterprise GAAP is not intended to be an interim solution, “but it will migrate in the direction of IFRS [International Financial Reporting Standards] over time.”

Ian Mackintosh, chair of the United Kingdom’s Accounting Standards Board, said they have not yet finalized their situation and will probably not be applying IFRS for small to medium‐sized entities (SME) before 2014. UK listed companies must use IFRS, while others can use them or UK Financial Reporting Standards, or Financial Reporting Standards for Smaller Entities (FRSSE), if they have below 50 employees. “We have 5‐6 areas where IFRS SME would not fit for the UK. We will have to change them to meet with our directions. Germany and France will have their own GAAP as they have their tax considerations and see no reason to change,” Mr. Mackintosh observed. “Everyone has their little favorite part of the GAAP that they would like to keep. We will be looking at where we have to change IFRS,” he stated.

“Every jurisdiction can decide for itself to comply with IFRS SME,” Tom Jones, former member and vice chairman of the International Accounting Standards Board, told the BRP meeting.

While IFRS cover thousands of pages, the SME only cover 230 and “are very easy to read in one evening,” he stated. Mr. Jones pointed out there are “huge savings” in countries moving to uniform standards. During his time on the IASB, he learned three things: “1‐ No one should be allowed to write accounting standards who wants to. 2‐ In most cases it doesn’t matter which way you go – as long as you go the same way. 3‐ If you want to write accounting standards and you want a friend – get a dog.”

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