1. Copyright © 2011 American Institute of CPAs Private Company Financial Reporting Historic Changes to Benefit the Marketplace

2. Copyright © 2011 American Institute of CPAs Background on Financial Reporting 15,000 issuers vs. 28.5 million private companies but GAAP driven by public company issues Small businesses employ more than half of all private sector workers Private companies and their financial statement users have information needs different from public companies

3. Copyright © 2011 American Institute of CPAs U.S. Not Alone Canadian Accounting Standards Board decided one size does not fit all and published Accounting Standards for Private Enterprises in Dec. 2009 UK Accounting Standards Board proposing three-tier system of financial reporting Germany has become first major country to have two standard setters Council on Accounting for Unlisted Companies formed in Japan to determine if changes should be made to standard-setting process for unlisted companies IFRS for SMEs – being used in many areas of the world and being considered in some others

4. Copyright © 2011 American Institute of CPAs What U.S. Constituents Say about GAAP for Private Company Financial Reporting Too many GAAP-specific requirements not useful or relevant for private companies’ financial statement users Greater FASB emphasis on equity/public company investors Most important problem: relevance Increased complexity is burdensome, time- consuming Based on 2004 AICPA task force research among constituents with 3,709 responses

5. Copyright © 2011 American Institute of CPAs In sum… Private companies incurring significant unnecessary cost for financial statement preparation and audit, review or compilation services Private companies are increasingly taking GAAP exceptions Current system is not attuned to the needs of private company financial statement preparers and users

6. Copyright © 2011 American Institute of CPAs U.S. Answer: Blue Ribbon Panel on Private Company Financial Reporting Address how accounting standards can best meet private company financial statement users’ needs Determine future of GAAP standard-setting process for private companies 18 panel members: cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors

7. Copyright © 2011 American Institute of CPAs Panel’s Major Conclusions Resolved: A systemic problem exists that needs solving Supermajority recommendation #1: Enhance GAAP for private companies by making significant modifications, where warranted Supermajority recommendation #2: FAF should create a separate private entities accounting standards board

8. Copyright © 2011 American Institute of CPAs Reasons for Separate Board Not Subject to FASB Approval Board consisting of members with private company constituent experience would set different standards FASB carries out SEC’s statutory responsibility for accounting standards (investor orientation) History and current environment demonstrate FASB cannot effectively balance competing needs of both public company and private company areas

9. Copyright © 2011 American Institute of CPAs Other Key Recommendations Framework for differential decision criteria 3-5 year sunset review to determine effectiveness of new board 5-7 board members

10. Copyright © 2011 American Institute of CPAs Current Status of Initiative FAF formed working group Group has been engaged in outreach to advisory groups and individuals Action plan to be issued this fall Now is the time to affect outcome

11. Copyright © 2011 American Institute of CPAs How You Can Shape Your Future Participate – Tell FAF you support panel’s recommendations for: Differential standardsDifferential standards Separate, autonomous standard-setting bodySeparate, autonomous standard-setting body

12. Copyright © 2011 American Institute of CPAs Online Letter Assistant for Customized or Original Letters

13. Copyright © 2011 American Institute of CPAs aicpa.org/privateGAAP Backgrounder FAQ Videos Articles Press release template Resources to Help Send letter to FAF using online tool Gather support from others with education toolkit

14. Copyright © 2011 American Institute of CPAs Time for Change…

15. Copyright © 2011 American Institute of CPAs …It’s Decades in the Making

16. Copyright © 2011 American Institute of CPAs Need More Information?