Big GAAP and Little GAAP?

Erik writes:

This article brought to my attention that there has been a calling for a separate set of standards for private companies. This is the first I heard about the issue, but apparently it has been an ongoing fight between private industry and the Financial Accounting Foundation (FAF). There was recently a vote by the FAF that rejected a proposed independent board that would modify and make exceptions to current GAAP for certain issues for private companies.

I understand and agree with the need for a modified GAAP for private companies because GAAP is focused on the reporting needs of external users of financial statements. In regards to private companies, the current GAAP contains accounting standards that are often irrelevant or too complex for private companies. Often, the cost of using the current standards outweighs the benefits for private companies. A modified GAAP, would allow for private companies to present more relevant and useful information geared towards the users of private company financial information at a benefit which is greater than the cost.

Although I agree with need for a modified GAAP for private companies, I see a problem; How do you incorporate the new standards into practice and academia?

I agree with the need for a modified private company GAAP, but the one big hurdle mentioned above is the reason I think another set of GAAP rules is far away from occurring especially with current ongoing convergence with IFRS. What do you think?

http://www.accountingweb.com/topic/accounting-auditing/faf-rejects-independent-standard-setting-board-private-companies

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

2 comments

  1. While it would be nice for private companies to have seperate standards to go by, at this point is seems to be too much with our ongoing convurgence with IFRS as you stated above. Especially with those of us who are still studying for the CPA (I would hate to study one more thing.) After IFRS and GAAP finalize this transition, then I think we'd be more able to discuss ideas such as having a "little GAAP."

  2. I think it is completely understandable why private companies are calling for the establishment of “Little GAAP” standards. GAAP is focused entirely on the needs of public companies and some of its standards are completely irrelevant to private companies or are too complex for private company needs. With that being said, I agree with Erik that with the ongoing convergence with IFRS, this issue may be taking a backseat. Therefore, although I believe there should be a modified version of GAAP that appeals to private company needs, right now might not be an appropriate time to address this issue considering we are still working on convergence with IFRS.

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