Homework: Accounting For Private Vs Public Companies
For this Homework, 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.
In this guide, FASB identifies the following five Significant Differential Factors:
o Number of primary users and their access to management
o Investment strategies of primary users
o Ownership and capital structure
o Accounting resources
Learning about new financial reporting guidance
For Homework, write a 2 to 4 pages paper in which you:
a) Select two of the Differential Factors that interest you, and briefly explain why.
b) In your own words, explain the Factor and why it is different from a publicly traded company.
c) Identify the accounting risks associated with each of your chosen Factors. What would you recommend to minimize those risks?
d) 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.
Format your homework according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.
The specific course learning outcomes associated with this homework are:
a) Evaluate the liabilities portion of a balance sheet, including current liabilities, contingencies, and long-term liabilities.
b) Assess GAAP, IFRS, and how to research utilizing the FASB Accounting Standards Codification