The Financial Accounting Standards Board recently gave many private companies the gift of less red tape.
The private, nonprofit organization develops the generally accepted accounting principles (GAAP) that organizations are supposed to use.
FASB recently updated the definition of a "public business entity." The definition determines whether a company has to go through the extensive financial accounting process and file all the reports and forms required of a public company.
FASB and the Private Company Council have issued a guide to help private companies figure out the financial accounting and reporting they have to do. The guide identifies alternatives to public company accounting and reporting that private companies can use. The goal of the guide is to ensure that the quality of reported information remains high for private company stakeholders and the capital markets.
There are several ways in which financial accounting and reporting guidance might differ for private and public companies, including the recognition and measurement of income and expenses, the disclosures that have to be made, and how the information is presented.
Both organizations detail five factors that differentiate financial reporting considerations of private companies from those of public companies:
1. The number of primary financial statement users and their access to management
2. The investment strategies of primary users
3. The ownership and capital structure of the company
4. Accounting resources
5. The manner in which preparers learn about new financial reporting guidance.
The new guidelines should help many private companies reduce the complexity and costs of preparing financial statements.
-- Herb Wolfson, Wittlin, Simon & Newman; firstname.lastname@example.org
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