Private Company Audit Standards - Finally a Resolution?

by Kevin McGarry 2. August 2012 11:30
There are many stakeholders in the decade-long debate over financial reporting standards for privately held companies, including lenders, assurers, venture capitalists and the companies themselves. Now, a recently enacted measure may be bringing the debate to conclusion.   Currently, private companies follow U.S. Generally Accepted Accounting Principles (GAAP) when issuing reports, which are viewed as the gold standard for financial reporting; however, private company managers view GAAP as unnecessarily complex and lacking relevance to external users. In 2009, a panel was formed as a joint effort between the Financial Accounting Foundation (FAF), the AICPA, and the National Association of State Boards of Accountancy (NASBA) to determine the future of the standards-setting process for private companies.   Just a few months ago, the FAF Trustee Working Group announced its final decision to create a Private Company Council (PCC) to improve the standards-setting process for private companies. Although all decisions of the PCC are subject to FASB approval, the differences include: The PCC is a nine to twelve-member committee, including a non-FASB chairperson. A FASB board member will be assigned as a liaison to the PCC. The PCC is encouraged to set its own agenda without FASB approval. The PCC and FASB are encouraged to mutually agree on a set of criteria to identify possible exceptions and modifications to existing Generally Accepted Accounting Principles (GAAP) for private companies. Any such exceptions and modifications raised by the PCC are subject to FASB endorsement and a public comment period; FASB makes the final endorsement decision based upon a majority vote (four of seven members). In the instance of non-endorsement, the FASB chairperson will present written documentation to the PCC chair, providing a reason for the non-endorsement and possible changes for the PCC to consider that could lead to FASB endorsement. The endorsement process must be completed within a specified time frame, and all endorsed decisions will be issued as Accounting Standards Updates to the Accounting Standards Codification.   The PCC will provide reports to a newly established committee of the FAF Board of Trustees for the first three years, at which point the PCC will be re-assessed to determine whether further changes to the overall standards-setting process for private companies are necessary. With the creation of the PCC, the FAF trustees will try to avoid two sets of GAAP (one for private companies and one for public companies). The AICPA subsequently announced the development of a financial reporting framework to support self-contained, other comprehensive basis of accounting (OCBOA), intended for use by privately held small- to medium-sized entities preparing financial statements.   To understand how and why the PCC committee was formed or additional information on the newly announced final decision, please see The Controversy over Private Company Reporting Standards in The CPA Journal.
Categories: Assurance

Bonus Depreciation Introduced by House Democrats

by Tom Guappone 26. June 2012 10:41
Democrats on the House Ways and Means Committee introduced the Invest in America Now Bill of 2012 on June 20.  The bill includes legislation that would extend 100% bonus depreciation through 2012. The House Democratic bill is targeting businesses that would immediately benefit from the accelerated depreciation on the investments for machinery & equipment, computer software and other property.  Work on the bill is projected to begin the week of June 25. This should be the first of many bills that will be discussed to help the economy rebound through a comprehensive tax reform. For more information, please see the full article by the CCH News Staff. 
Categories: Tax

The JOBS Act: Trading IPOs for Blind Spots

by Hiller Hardie 26. April 2012 15:55
The Jumpstart Our Business Startups (JOBS) Act was passed into law on April 5, 2012. It encourages private companies to complete IPO’s by giving them reporting relief if they qualify as an emerging growth company (EGC). EGCs have less than $1 billion in revenue and $700 million in publicly traded stock. A previous blog warned about this legislation eliminating the Sarbanes Oxley requirement of an auditor’s report on a company’s internal control over financial reporting. However, the Act does require management to report on such internal control. Nevertheless, it is now more likely that EGCs will have errors or issues with their financial statements heading into a public offering. This was the case in 2011, when the SEC examined Groupon’s financial statements heading into its November IPO. Groupon had already revised its financials twice before that date because of the SEC’s scrutiny, and is revising them again due to inadequate reserves for customer refunds. This news prompted a sell off and drop in share price from $20 to $15.27. recently conducted a study of companies with SOX issues since 2004, when the SOX requirement for internal control took effect. They identified 104 companies with SOX issues who would have been exempt from auditor scrutiny if the JOBS Act had been in effect at that time. For more information on the JOBS Act see the April 2012 edition of BDO Knows: The Jumpstart Our Business Startups Act.
Categories: Advisory