Special "gaap" For Small Business

 

Small businesses have complained for years that the financial reporting standards used in this country, which were developed and refined with large, publicly held corporations in mind, are too complicated for small, private companies. The accounting profession is starting to agree.

The Financial Accounting Standards Board (FASB) in Stamford, Conn., the private body that sets American accounting standards, is examining ways to simplify "generally accepted accounting principles" for small companies. The FASB is soliciting comments on the subject and has contracted with two research firms to recommend possible changes. Glendon R. Hildebrand, FASB assistant director in charge of the effort, says he expects the FASB to propose new guidelines at the end of this year or early in 1983.

The national accounting firm of Seidman & Seidman recently surveyed its small business clients to learn their ideas on the issue. Their response, says Harvey D. Moskowitz, Seidman's national director of accounting and auditing, persuaded the firm to suggest that the FASB exempt small companies from those standards that are not justified by cost.

"Creditors, including lenders and suppliers, are the primary users of private-company financial statements," says Moskowitz. "Standards designed primarily to meet needs of outside investors should not be applied to private companies."

Moskowitz recommends simplifying the rules in four areas: accounting for income taxes, lease accounting, capitalization of interest, and accrual of employee vacation and sick days.

Although small private companies have less reason than public concerns to put together detailed financial statements, they often have to spend proportionately more to produce the reports. And, unlike larger corporations, small companies usually don't have the in-house expertise to assemble the required information. Thus they must hire outside auditors to do the job. "We have recommended that the FASB give special consideration to the significantly heavier cost burdens smaller private companies [are] forced to bear," says Moskowitz.