Accounting for Private vs. Public Companies. Accounting, Finance, SPSS
For Assignment 2, you will compare accounting principles for private and public companies. As you may have discovered as you’ve reviewed the materials for this course, most of what is learned in accounting courses focuses on public companies, not private ones. GAAP, as you have also learned from your studies, may be followed by private companies, but it is only required to be used by publicly traded companies. FASB, of course, is designated by the SEC to establish and improve GAAP, so their focus is primarily on publicly traded companies.
FASB has also recognized the importance and potential impact of private company financial statements. According to Forbes, out of the 5.7 million firms with employees in the United States, less than 1 percent have shares listed on a U.S. exchange. Although we tend to think of private companies as small companies, the reality is quite the opposite, with private firms accounting for 86.4 percent of U.S. firms with 500 or more employees.
In recognition of the growing importance and impact of private companies, FASB has come up with a useful publication – Private Company Decision-Making Framework, A Guide for Evaluating Financial Accounting and Reporting for Private Companies. You can access this document by clicking here.
In this guide, FASB identifies the following five Significant Differential Factors:
Number of primary users and their access to management
Investment strategies of primary users
Ownership and capital structure
Accounting resources
Learning about new financial reporting guidance
For Assignment 2, write a 2-to-4 page paper in which you:
Select two of the Differential Factors that interest you, and briefly explain why.
In your own words, explain the Factor and why it is different from a publicly traded company.
Identify the accounting risks associated with each of your chosen Factors. What would you recommend to minimize those risks?
Based on what you have learned this quarter, what components of the Balance Sheet have the most potential to be impacted by the Differential Factors you have chosen? Identify both positive and negative potential impacts.
Professor’s Name
Course
Date
Accounting for Private vs. Public companies
Investment strategies for Primary users
Investment strategies are factors that should be put in place before starting any form of a business. Investment strategies come in different dimensions, depending on the needs of an individual. The good thing with this differential is that it gives information on the best ways that an individual can follow to get it right in business. Moreover, investment strategies ensure an investor would benefit in the long term. This factor is different from a different traded company because it can be changed from time to time if the strategy does not work well with an investor. A risk with this differential is that selling assets becomes taxable, and it is, therefore, expensive (Agrawal and Kai 4). In order to minimize this risk, it is essential to go for the right strategy after research. Assets are the component of a balance sheet that can be affected ...
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