Accounting and Financial Issues Related to Privately Held Companies

Topic 8: Accounting and financial issues related to privately held companies
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Introduction
There been concerns on whether to rely on different standards compared to public companies, the U.S GAAP and the place of convergence in financial reporting for the private entities. Even when accountants deal with the same financial information it is possible to have different financial statements from the same data and information. This includes the information prioritized in the footnotes. The U.S. GAAP tends to be more industry specific, but there is no agreement whether to rely on the common standards between the IFRS and GAAP. The private held companies are not required to follow the stringent accounting rules, but there is less clarity on what is to be considered principles or rules since there is insistence on having differential standards. This paper highlights the accounting and financial issues concerning privately held companies.
Complexity in reporting
In setting the standards to govern the financial reporting of private held companies the Financial Accounting Foundation (FAF) allows the stakeholders to propose changes in standard setting (Accountingfoundation.org, 2015 a). Private held companies do not require stringent reporting on disclosures like the public held companies. However, there are unnecessary costs associated with preparing statements in accordance with GAAP standards, highlighting the need to deal with the complexities when reporting for the much smaller private entities. The establishment of a separate body to oversee the financial reporting of the reporting entities has been proposed to deal with the issue as this would eliminate the unnecessary disclosures making reporting burdensome for the small and medium-sized private businesses.
Standard setting entities
The issue of standard setting for the private entities is a proposal that has been recommended to ensure there is more clarity when reporting. For instance, the Blue Ribbon Panel on Private Company Financial Reporting recommends that there is a separate standard setting- entity and difference standards to make the financial information more meaningful to users of financial statements (Accountingfoundation.org, 2015 a). Identifying the differences to be associated with different private held companies is consistent with the need to have relevant information to aid in decision-making. Efforts towards differential standards have gathered pace because of concern that the current standards are inadequate for the private sector as they are general to all organizations. The FASB has in the past approved standards, but then a separate and autonomous standard setting entity would be better suited to ensure there are different standard settings.
Introducing relevant standards
The case for adopting new standards is that they would be more relevant to the business needs of private held entities (Rosivach, 2011). Many of the companies have supported such initiates for the standard setting changes, but since they have been insufficient. At the moment, there is an issue on how to set the stan...