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Groups Propose to Simplify Accounting for Small Firms

What's your take on this NY Times article?

Groups Propose to Simplify Accounting for Small Firms

Making accounting easier for small companies — and saving them the need to report some losses that big companies can face — has become a new preoccupation of the accounting profession.

The American Institute of Certified Public Accountants, a trade group, will announce on Monday that it is has created a “framework” that would simplify accounting for such companies. It would differ from the “generally accepted accounting principles,” or GAAP, that public companies must follow in a number of ways, large and small.

http://www.nytimes.com/2013/06/10/business/groups-propose-to-simplify-accounting-rules-for-small-businesses.html

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Very dangerous, as it is essentially an exception to GAAP. Anyone that has managed a process knows that as soon as you begin to add exceptions, complexity increases and so do errors. Five years ago - just GAAP. What will five years from today look like - IFRS; GAAP (full - public co); GAAP (lite - private only); and GAAP (hybrid - Crowd funding/JOBS Act).

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

It is a bit of a curious exercise. My first question - on seeing your post - is what defines a SME. From the AICPA document you linked to:

A standard definition of small- and medium-sized entities does not exist in
the United States. However, the term is intuitive, widely recognized, and
effectively descriptive of the scope of entities for which the FRF for SMEs
accounting framework is intended. The task force and staff deliberately
did not develop quantified size criteria for determining what is a small and
medium-sized entity because they decided that developing quantified
size tests is not feasible and not an effective way of describing the kinds
of entities for which the framework is intended. Rather, characteristics of
typical entities that may utilize the framework are presented in the following
text. These characteristics are not all-inclusive and are not presented
as a list of required characteristics an entity must possess in order to utilize
the framework. The AICPA has no authority to prevent or require the
use of a special purpose framework like the FRF for SMEs accounting
framework. These characteristics are presented as helpful guidelines for
management and other stakeholders when determining the appropriateness
and suitability of the FRF for SMEs accounting framework in the
preparation of financial statements. Ultimately, the decision regarding
which accounting framework best meets an entity’s financial reporting
needs rests with management.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I looked at this from a flip-sided point of view.

If someone (or group) is seriously looking at simplifying GAAP for a sub-set of companies, maybe they should as a group just look to simplify GAAP.

I mean, really, it has become to steal Regis thought process way to complex, with way too many exceptions (though they don't call them exceptions) and has become easy for practitioners to err.

I almost sound Reaganesque (in the non-urban definition)!

Topic Expert
Jaime Campbell
Title: Chief Financial Officer
Company: Tier One Services, LLC
(Chief Financial Officer, Tier One Services, LLC) |

This looks like the "little GAAP" that I've been hearing about.

It makes sense that the users and preparers/companies have different points of view. And I do think that in some cases it is counterintuitive for a user to want large-company practices applied to smaller companies. The user has an interest in these financial statements for a reason, and draining more resources from the company for irrelevant information doesn't promote the user's cause.

The specific example provided in the article was a good one. When I look over financial statements, if I see Goodwill, I'm more interested in the cash flows generated from the new business than in the carrying value of the asset.

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