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For decades, U.S accountants in all fields have recognized a need for a simpler set of financial reporting standards for small businesses, but regulators have not been willing to provide a second set of standards. Now, for the first time, there may be an answer for small firms desiring relief from the onerous reporting requirements of GAAP. The AICPA now recognizes the International Accounting Standards Board's (IASB) recently released International Financial Reporting Standard for Small and MediumSized Entities (IFRS for SMEs), as an official set of accounting standards to be audited against. Now that separate accounting principles designed specifically for small businesses exist, how will it be received by CPAs? Will small businesses and their accountants change their methods?
Different Businesses, Different Needs
Businesses can be classified into three broad categories: public companies, private companies, and small businesses. The distinction between the latter two is the size of the company. Small businesses generally have less than $10 million in revenue and fewer than 50 employees. Though small, these businesses are important in the aggregate as the major creator of new jobs. Small businesses also constitute a major source of clients for local and regional CPA firms.
The need for accounting reports varies among the three classes of businesses. Public companies listed on stock exchanges must prepare a full set of financial statements with comprehensive notes and disclosures. Accounting reports are also used to comply with various government reporting requirements. Primary among these is the need to report a business' s income, personal property, and payroll to the necessary tax authorities. The relative importance of different uses of accounting reports varies with the size of the business. The full set of financial statements is subject to close review by government regulators, such as the SEC, and market analysts. In the United States, Generally Accepted Accounting Principles (GAAP) are formulated by FASB and reviewed by the SEC. Currently, FASB does not distinguish between different types of businesses. In 2006, however, FASB and the AICPA issued a joint proposal, "Enhancing the Financial Accounting and Reporting Standard- Setting Process for Private Companies." It states, "FASB and the AICPA recognize the need to carefully evaluate whether financial reporting standards meet the needs of users of private company financial reports and...