CUNA Comment Letter

Private Company Financial Reporting
File Reference 1310-100

August 18, 2006

Mr. Lawrence W. Smith
Technical Application and Implementation Activities
Financial Accounting Standards Board
401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116

Dear Mr. Smith:

The Credit Union National Association (CUNA) is pleased to provide comments in response to the Invitation to Comment published jointly by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) entitled, “Enhancing the Financial and Reporting Standard-Setting Process for Private Companies.” The joint proposal is intended to improve transparency in the financial accounting and reporting process for private companies. The proposal would implement enhancements to FASB’s current process for developing standards and is designed to encourage greater input from private company constituents into the standard-setting process. These changes, if adopted, would assist FASB in determining whether standards for private company financial accounting and reporting within generally accepted accounting principles (GAAP) should differ from those of public companies. To further ensure that the views of private company constituents are incorporated into the standard-setting process, FASB and the AICPA propose to co-sponsor and co-fund a new committee as an additional resource. The committee would provide recommendations to FASB on whether differences in prospective and existing accounting standards for private companies are warranted. While the Invitation to Comment refers to for-profit private entities, we understand that not-for-profit cooperatives such as credit unions would also be covered under the term “private company”.

By way of background, CUNA is the nation’s largest trade organization for credit unions, representing about 90% of the approximately 8,800 state and federal credit unions in this country, which serve nearly 87 million members. This letter was developed under the auspices of CUNA’s Accounting Task Force, chaired by Scott Waite, SVP/CFO of Patelco Credit Union in San Francisco.



CUNA supports FASB’s efforts to seek input from those involved in financial reporting for private companies, including financial statement users, preparers, and auditors. Given that approximately 90 percent of businesses in the U.S. are privately owned, it is vital to consider the perspectives and needs of those organizations when accounting rules are established.

In light of the recent studies/projects on financial reporting for private companies undertaken by the AICPA, the International Accounting Standards Board and the Canadian Accounting Standards Board as noted in the Invitation to Comment, CUNA believes it is appropriate and timely for FASB and the AICPA to explore whether differences should exist within the existing framework of financial accounting and reporting standards of private companies.

We agree with the position of FASB and the AICPA stated in the Invitation to Comment that the creation of a separate, new set of GAAP requirements for private companies is not necessary. However, we concur with the view of many respondents to the AICPA Private Company Financial Reporting Task Force survey that many GAAP-specific requirements lack relevance or decision usefulness to private company constituents. The financial statements of private companies are intended for a different audience than are those of public companies. While the financial statements of public companies are designed for the investor community (capital markets), the intended users of financial statements of private companies are, for example, regulators, lenders and members of cooperatives, such as credit union members.

Further, the requirements imposed on publicly-traded companies by the Sarbanes-Oxley Act (SOX) to deter fraud and add transparency to public companies’ financial reporting procedures were a direct response to high profile accounting scandals such as Enron and WorldCom. Congress did not deem it necessary to impose these same requirements on private companies. Officials of shareholder-owned companies have incentives that substantiate the need for stringent corporate governance rules, while private companies such as credit unions do not. For example, credit union officials have no stockholders and, unless they convert to a savings bank or mutual holding company, have no mechanisms to unjustly enrich themselves through manipulation of the organization’s stock price.

In the ACIPA Task Force survey, respondents rated the benefits of preparing or using GAAP financial statements when compared with the cost of preparing them as medium to moderately high. We believe that by conducting cost-benefit evaluations of various rules, FASB and the AICPA could find ways to address potential abuses in private companies using a highly-targeted approach that is limited in scope. In this manner, the cost to private companies of providing appropriate and accurate financial statements would be more in line with the benefits they provide to their constituents. We believe FASB and the AICPA should explore whether potential differences in recognition, measurement, disclosure, presentation, and/or effective dates (or scope exceptions) should exist for private companies with an eye toward decreasing the compliance burden for private companies where possible.

CUNA also supports the establishment of the new 11-member committee to serve as a resource to FASB on issues related to private company accounting. We understand that the new committee would have several roles: to provide information to the FASB Board, staff, and working groups to assist them in understanding private company viewpoints; to analyze proposals by the FASB or its working groups and make formal recommendations to the Board on those proposals; and to evaluate whether existing standards are providing decision-useful information to users of financial reporting information of private companies in a cost-beneficial way and make formal recommendations to the FASB as agenda requests for changes to existing standards. We believe the committee should not set its own agenda and priorities but instead should report to FASB.

In the Invitation to Comment, FASB and the AICPA inquired whether members of the committee (except the chair) should be compensated beyond a reasonable reimbursement of expenses. Since FASB and the AICPA will want the most experienced and knowledgeable individuals possible from the private sector serving on this important committee, it may be helpful for committee members to be compensated beyond simply reimbursement of expenses for the time and effort they will devote to their representation.

We commend FASB and the AICPA for their demonstrated commitment to the proposed changes. Thank you for the opportunity to comment. If you have any questions about this letter, please contact me by phone at (202) 508-6743 or by e-mail at


Catherine Orr
Senior Regulatory Counsel
Credit Union National Association