Small business accounting may become streamlined under new ...

By BuildMyBiz on July 5th, 2013

July 5, 2013 in Finance and Accounting

Small business owners are often forced to comply with the same standards that large corporations adhere to when conducting accounting practices. However, a proposal from a small business advocacy group may mean that small firms will have their accounting tasks simplified, according to The New York Times. The source stated that the American Institute of Certified Public Accountants (AICPA) plans to release new financial reporting framework for small- and medium-sized enterprises. It would differ from the generally accepted accounting principles (GAAP) that publicly traded companies are required to follow.

The recently drafted framework would allow private companies to be exempt from GAAP regulations. The source noted that many small companies find that GAAP statements can be costly to prepare, with a significant percentage of the costs derived from disclosure rules that don?t apply to private firms.

Although there are no laws regarding financial reporting for companies that do not sell securities in the United States, all business must have some accounting system in place. The New York Times noted that many small business owners use tax accounting only. However, following industry standard policies and guidelines is an attractive option for many, as it boosts credibility within a company?s structure.

Challenges ahead
Although the new proposal is a positive development for small business leaders, it will be difficult to have the new framework widely implemented. The source noted that experts with the?AICPA?believe that it needs to be embraced by a large number of accountants and bankers before it becomes a viable option. A close relationship between bank workers and certified public accountants will be necessary for the successful adoption of the framework. Enterprises that follow the new guidelines will also be particularly challenged if they ever decide to go public, as they will be forced to adapt their accounting practices to follow GAAP rules. It?s also important to note that past efforts at simplifying small business accounting have resulted in failure.

However, AICPA?officials believe the new guidelines can be effective at helping small firms reduce spending.

?I think this new accounting framework is exactly what business owners, CPAs and community bankers have been looking for as a viable and reliable alternative to the options already available,? said Richard Caturano, a member of the AICPA Board of Directors, in a press release.? ?The FRF [Financial Reporting Framework] for SMEs expands the accounting options for CPAs and private companies, while providing comprehensive, consistent and cost-beneficial financial statements.?

According to the organization?s statement, the framework will provide a standard reporting approach while providing a level of flexibility through a number of reporting options available to businesses.

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Source: http://buildmybiz.com/small-business-accounting-may-become-streamlined-under-new-framework/

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