Big GAAP (Generally Accepted Accounting Principles) vs. Little GAAP

January 02, 2014 By Dustin Wood

There has been a significutah foreign bankant amount of debate in the financial accounting world related to the concept of Big GAAP (Generally Accepted Accounting Principles) vs. Little GAAP. The debate focuses on whether there should be one set of professional accounting standards for public companies and a separate set of standards for private companies. The driving force behind this debate is the belief by many accountants and their small business clients that GAAP is too complex and burdensome for private companies to comply with. The needs of users of private company financial statements may also differ from those of public companies.

Currently, it doesn’t appear as if there will be two completely separate sets of accounting standards, but accounting standard setting bodies have established a Private Company Council which may help carve out some existing accounting standards that would be applied differently by public and private companies. The Council’s main purpose is to determine what changes may be needed to address the needs of users of private company financial statements. Projects currently on their agenda or that they are considering, include:
• Amortization of goodwill – Goodwill is not amortized under existing accounting standards, but it is tested for impairment annually. The Council is considering whether goodwill should be amortized for private companies.

• Variable interest entities - Entities with similar ownership that have economic reliance between them are currently required to be consolidated in financial statements, but the Council is considering whether consolidation should be required for private companies.

• Lease accounting - There is a convergence project between U.S. and international accounting standards that would significantly change the accounting for leases, but the Council may consider whether private companies should follow the potential new accounting treatment.
We will continue to monitor the status of this debate and the Private Company Council’s recommendations and provide updates once final private company accounting standards have been issued.

Dustin Wood

Dustin Wood

Dustin is currently a manager over our audit department and works in the Logan office. He specializes in compilations, reviews, and audits of financial statements, and in the preparation of payroll tax reports and nonprofit information returns.

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