Executive summaries of Should Small Businesses Adopt New Accounting Standards - Essay Example

EXECUTIVE SUMMARIES OF SHOULD SMALL BUSINESSES ADOPT NEW ACCOUNTING STANDARDS Introduction The American Institute of Certified Public Accountants (AICPA) Director Bob Durak defines small and medium sized businesses (SMEs) as those businesses that are usually managed by their owners. This means that they operate as sole proprietorship businesses. Such businesses do not necessarily require financial reporting based on the GAAP method. The users of their financial statements have easy access to the business management; either by phone or e-mail.

With this definition in mind, one is in a better position to understand the changed financial reporting framework for SMEs and determine whether or not they should be adapted. The AICPA financial reporting framework (FRF) revolves around various accounting terms such as debts, credit, risks, profits and losses as well as all assets and liabilities belonging to a business. Bob argues that the current financial reporting framework is an improvement of the previous frameworks. According to him, the improvement is meant to make it easier for SMEs to prepare their financial statements in a much simpler and consistent manner.

For instance, with the current reporting framework business A and B can compare their financial statements over the years as they are prepared under specific guidelines as provided by the AICPA. The new financial reporting framework guides the SMEs on preparation of full financial statements. These include the statement of financial position, statement of changes in equity, statement of cash flows and statement of operations. The SMEs are also guided on how to prepare relevant notes that serve as supporting references to the financial statements.

AICPA emphasizes on the need of preparing financial statements; for the benefit of the management as well as external users such as bankers and financiers. The purpose of improving on the accounting standards is to ensure that the financial statements of a business capture its economic performance, the economic obligations, resources and equity as well as changes on the same. Bob recommends adaption of this framework as it offers simpler methods of accounting. In an interview with Bob, Patrick notes that the current financial reporting framework is a bit complex for small and medium sized businesses as it entails detailed financial reporting most of which is only necessary for big industries.

Bob adds that this is the main reason as to why the financial reporting framework was reviewed. He argues that they had the troubles SMEs go through in compliance with this tiring framework in mind as they redrafted it. The main goal for the redrafting the framework was to provide more dependable financial statements for the management of SMEs and any other user of the accounts. The current reporting framework ensures consistency among various SMEs and it does not dwell on the tax basis and cash basis of accounting as applied in the GAAP method of reporting.

Conclusion AICPA reports that this financial reporting framework is not meant for big companies or government entities. Instead, it has been specifically drafted to cater for the needs of all SMEs in the country. This reporting framework is more comprehensive and it has been proven to be efficient in the businesses that have already adapted it. It is for this reason the Bob tries to reach out to other medium businesses to do the same instead of weighing down themselves with reporting frameworks that are meant for big businesses.

ReferenceShould Small Businesses Adopt New Accounting Standards? By Patrick Clark June 12, 2013