US standard setters could forge own path for SMEs

THE US FINANCIAL Accounting Foundation might set accounting standards for private companies, writing rules that would be distinct from both US GAAP and global standards.

Starting from scratch rather than using international financial reporting standards might be significant, indicating the US is unconvinced by the global rulebook.

FAF is consulting on plans to establish a council which would identify, propose and vote on improvements to standards designed specifically for non-listed companies, Accounting Today reports.

Any changes would still be subject to approval by the Financial Accounting Standards Board, which is itself overseen by the FAF.

FAF president and CEO Teresa Polley said: “The plan basically is that the board of trustees will establish a Private Company Standards Improvement Council, and this council would determine if exceptions or modifications to GAAP are required to address the needs of users of private company financial statements.”

US institute the AICPA has argued the proposal does not go far enough, calling for a separate body which would be overseen by FAF but independent of the FASB.

AICPA chairman Paul Stahlin said: “Unfortunately, FAF’s proposal has failed to accept the views of the many voices of the private company constituency asking for a separate board. We don’t think the concerns of smaller private companies can be fully appreciated until there is an independent board dedicated and focused solely on the needs of private companies.”

Currently, private companies preparing accounts can choose to report under US GAAP or international financial reporting standards for SMEs, although few pick the latter option.

One expert observer said there is “recognition that private companies haven’t been looked after in the same way as public companies”, which could be behind FAF’s decision to act.

However, with no existing SME standards in place, some might question why the US does not import IFRS for SMEs – already favoured by around 80 countries – rather than drawing up an entirely new set.

US regulator the SEC is due to make a decision on adoption of full IFRS for public companies later this year, and it could be that FAF does not want to pre-empt this, or be seen as ushering in IFRS by the back door.

Stakeholders have until 14 January 2012 to comment on the consultation.

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Fiona Westwood of Smith and Williamson.