A prominent accountant calls the International Accounting Standards Board “misleading”.

Users of private company financial statements have different needs than stock analysts and investors in public companies.  So many public-company disclosures are irrelevant to the users of private company statements.  The International Accounting Standards Board says that IFRS for Private Entities aims to give private companies a simpler accounting standard.  Now in draft, IFRS for Private Entities will probably be published early in 2009.   

But Andy Thrower, a partner at Naviscent and former National Chairman of  FEI’s Subcommittee on Private Company Accounting Standards, says that IFRS for Private Entities does nothing to ease the accounting burden on U.S. private companies and calls the IASB’s claims of simplification “misleading”.

In an interview with IFRS Reporter, Thrower said, “Simplification is not there and I don’t believe that private companies will experience any meaningful difference between what’s in IFRS for Private Entities and what they’re doing now.”  In a detailed article now under consideration at The CPA Journal, Thrower presses the case that IFRS for Private Entities may be short, but is just as complicated as U.S. GAAP or full IFRS.  IFRS for Private Entities is much shorter than U.S. GAAP or full IFRS, but only because it leaves out the implementation guidance.

 In 2005, the AICPA published its Private Company Financial Reporting Task Force Report, identifying twelve burdensome GAAP accounting standards that were mostly irrelevant and/or useless to users of private company financial statements.  “All twelve are fully included in IFRS for Private Entities,” Thrower says.

 He noted these items in particular in his interview with IFRS Reporter:

• Employee Stock Options – the valuation of employee stock options is expensive and time consuming to calculate, irrelevant to users of private company financial statements – and required by IFRS for Private Entities.  “If anybody thinks that IFRS for Private Entities is giving them a break that’s one example where it is not.  Three little pages of the IASB standard give you just as big a headache as 280 pages of the U.S. GAAP standard,” he says.

• Fair Value Measurements – in both full IFRS and U.S. GAAP, management can usually choose to account for a financial instrument at historical cost if they plan to hold it until maturity. Otherwise they must account for it at fair value.    The IASB claims they have simplified financial instrument accounting but how did they simplify?  They took away management’s ability to make a choice.  “As a result, virtually all financial instruments have to be measured at fair value.  So there is no relief for a company from measuring and reporting financial instruments,” Thrower observes.

• Accounting for Subsidiaries – in the wake of the Enron scandal, U.S. GAAP broadened requirements that companies consolidate subsidiaries.  But many private companies have complicated structures for estate planning, tax or other reasons.  Bankers complain that they have to un-consolidate statements of private companies prepared according to GAAP.  “If you look at IFRS for Private Entities you can easily be misled, because it will allow you to have a parent-only company, yet must consolidate any subsidiary.  You’ll be incurring all the costs you incur under GAAP.  We’re not achieving the simplification many people wanted – i.e. leave my wife’s company out of this because the bank doesn’t care.”

• Accounting for Intangibles – “You must do an annual test to see if any impairment is indicated and the test is quite extensive.  Why require this of private companies? For smaller private companies, bankers don’t allow intangibles as collateral.”

•   Lease Accounting –   “If you read the IASB Staff Project Update posted on the website, they call lease accounting for lessors a simplification.  In my mind to call it a simplification is simply a misleading statement.  I’m going to do exactly the same thing I do now when IFRS for Private Entities comes along.  There’s no simplification.”

• Accounting for Pensions and Post-Employment Benefits – IFRS for Private Entities requires companies to measure and disclose the fair value of assets and the present value of obligations.  “That means you have to hire somebody to measure the actual value of your pension liability, which means private companies have to incur the cost.  They’re already doing that under US GAAP.  Private company financial statement users look at it and say ‘So what?”

Thrower’s analysis is bound to be controversial.  For more information click here. IFRS Reporter will continue to cover the debate as it develops.  Comment below or e-mail article proposals or other submissions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .