I recently spoke with Bill Knese, CMA, CFM, CPA, member of IMA’s Global Board of Directors and CFO of Angus Industries, Inc. In the first of a two-part series, we discussed whether private companies would benefit from a separate standard setting body. Stay tuned for part two, and watch the full video interview below.
This interview has been edited and condensed.
Jeff Thomson: Private companies account for significant job growth and entrepreneurism in the U.S. economy. Do current U.S. GAAP financial reporting standards constrain private companies in any way?
Bill Knese: I think the GAAP constrains private companies in two general areas. One is the issue of knowledge. If you’re the CFO of a private company, you need to stay current with the accounting pronouncements because that’s your field and that’s what you’re responsible for. There are numerous, and increasingly complex, accounting standards that take more time to go through, to understand and to implement. Add to that the time it takes your auditors to come up to speed.
The second major constraint is in the area of cost. All of the prep time and knowledge-gaining activities give CFOs less time to spend on their business. It’s a cost to the business as well as to the professionals you employ. For instance, my audit costs me more simply because my auditors have to look at things that really don’t influence private company results.
JT: You served as IMA’s representative on the prestigious year-long Blue Ribbon Panel on private company financial reporting. Can you summarize the panel’s recommendations for our readers?
BK: They can be grouped into two major recommendations. The first is there should be GAAP with exceptions for private companies. The second is there should be a separate standard setting body for private companies.
JT: The Financial Accounting Foundation (FAF) recently issued a recommendation with requests for comments on private company financial reporting. Do you agree with their recommendations, which only partially align with the Blue Ribbon Panel recommendations you just summarized?
BK: Let me start by giving you a little history on this issue. This debate has been going on for nearly 30 years and there have been a number of bodies that have been established to investigate whether there should be a difference in private company standards versus public company standards. The Blue Ribbon Panel was the most recent of those.
It’s very interesting to me that there’s a whole discussion area related to the arcane business of accounting standards. Who would have thought? With that said, we have all grown up understanding that there is a gold standard, which is GAAP. Now, we’re looking at what happens to those principles so they serve both the public and private reporting market. It has the potential to really be divisive to the profession.
The Blue Ribbon Panel made its recommendations, and now we have FAF, which came back and said it believes in a number of them and can implement them, but one of the panel’s recommendations involving a separate standard setting body is not one that FAF agrees with. I was part of the group that recommended this in 2010, and now in 2012, we’re still debating what should happen. I think progress can only be made if we have a separate standard setting body that reports to the FASB (Financial Accounting Standards Board).
JT: In the meantime, what should private companies be doing?
BK: We do have a set of standards that we all agree with and grew up with. Until there is a good alternative that makes sense, CFOs must stay the course.
This column offers CFOs, and their teams, insights and ideas related to challenges of the position, in light of market demands and global economic conditions. Jeffrey C. Thomson, CMA, is president and CEO of IMA (Institute of Management Accountants), one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Follow IMA on Twitter and visit IMA’s YouTube channel.
By Jeff Thomson, CMA. This column originally appeared on Forbes.com: http://www.forbes.com/sites/jeffthomson/2012/09/27/why-private-company-cfos-would-benefit-from-a-separate-standard-setting-body/