What’s so Big about Small Business?

For many years, the Financial Accounting Standards Board (FASB) and other regulatory bodies have focused on accounting issues—ranging from business combinations to fair value—largely revolved around the needs of large publicly traded companies. Recently, however, standards setters are recognizing that small private companies need guidance on technical issues as well.

You may wonder why we place attention on the needs of smaller enterprises. Wouldn’t the needs of large companies work for all? The answer is “no.” The needs of smaller organizations, and the information needed by those reading their financial statements, are much different. Inarguably, all companies need to be accountable to their stakeholders. But the complexity of standards that work for large organizations need to be the right size to work for small organizations.

Big things come in small packages

Small businesses (500 employees or less) in the United States actually play a large role. It’s a startling fact that, according to the U.S. Small Business Administration, in 2010 there were 27.9 million small businesses, making up 99.7% of U.S. employer firms. Small firms also accounted for 64% of the net new jobs created between 1993 and 2011 (or 11.8 million of the 18.5 million net new jobs). From 2009 to 2011, these companies accounted for 67% of the net new jobs. The health of small private companies is important, whether you own a small business or get your paycheck from one.

Small businessesWhat I do…

As IMA® (Institute of Management Accountants) director of market advocacy, I oversee this association’s volunteer committees that monitor the pulse of accounting and business issues. The lifeblood of IMA’s Small Business Financial and Regulatory Affairs Committee (SBFRC), for example, is to ensure that the voice of the small business sector is heard by the FASB and other regulatory organizations. The committee works with these organizations on behalf of IMA’s members and the many small businesses that make up our economy.

Looking out for small business

Recently, SBFRC submitted a letter to the FASB’s Private Company Council (PCC) and the American Institute of Certified Public Accountants (AICPA) about proposed frameworks they have developed for private company financial reporting issues. The SBFRC’s general message is that there should not be two sets of U.S. GAAP (Generally Accepted Accounting Principles) to be followed by public vs. private companies. The SBFRC is committed to ensure that small business needs are considered as the frameworks are developed further.

As the U.S. economy recovers from the economic downturn, the voice of the small business owner must be heard. Tell us your thoughts on what topics should be addressed by the FASB and other regulatory bodies that affect small business.

Written by Linda Devonish-Mills, CMA, CPA

Related Articles:
Little GAAP Could Drive Accounting Simplification
More Jobs Now, but Where Is the Country in Economic Cycle?

3 thoughts on “What’s so Big about Small Business?

  1. Hi Linda. Great post! Those facts about small businesses were really surprising! In the past, why did regulatory bodies largely focus on accounting issues that revolved around the needs of large, publicly-traded companies?

    • Large, publicly-traded companies are required to prepare financial statements that adhere to Generally Accepted Accounting Principles (GAAP). However, small, publicly – traded companies are also required to adhere to accounting principles. I think that the statistics revealed in the post has been a wake up call to standards setters that in addition to small public companies, small private companies can benefit from accounting guidance since their users, primarily financial institutions, have a preference for such companies to issue financial statements that adhere to GAAP.

      In the future, there may be an expectation for companies of all sizes to adhere to a global set of standards. Such standards would include guidance based on GAAP and International Financial Reporting Standards.

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