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According to the U.S. Census Bureau, there are approximately 29 million privately held companies in the United States. Many of these small- and medium-sized (SME) entities report to a limited range of financial statement users, including venture capitalists, insurers and lenders.
In December 2009, the American Institute of CPAs (AICPA) and the Financial Accounting Foundation (FAF) formed a Blue-Ribbon Panel to address how U.S. accounting standards can best meet the needs of users of private company financial statements. The Panel is expected to provide recommendations on the future of standard setting for private companies. The analysis will include whether standalone accounting standards are needed.
Once set of standards that will be reviewed is the International Financial Reporting Standards (IFRS) for SMEs. Released during July 2009, the Standards are a slimmed-down version of the full IFRS. Along with the SMEs standards, the International Accounting Standards Board (IASB) released implementation guidance, including example financial statements and disclosure checklists.
These standards may have a widespread effect. According to the IASB, more than 95 percent of the companies around the world are classified as SMEs. Although there is not a size test to determine whether a company is an SME, classification is more readily determined by whether the company has “public accountability.” As a result, this standard is not available to companies that are publicly traded or who hold assets in a fiduciary role, such as banks or insurance companies.
Because there is not a definitive timeline for adoption of IFRS by the SEC, there will continue be a period of substantial change. Since private companies will also be affected by the switch we will continue to monitor the process at the SEC, as well as with existing convergence projects by the FASB and IASB.
PKF Texas has written a white paper detailing the impact of the impending conversion which can be found on our website at www.pkftexas.com/IFRS.