Compare Accounting Principles For Private A ✓ Solved

Compare Accounting Principles For Private A

For Assignment 2, you will compare accounting principles for private and public companies. As you have discovered, most accounting courses focus on public companies, with GAAP being mandatory for publicly traded firms and optional for private companies. The FASB primarily governs public company accounting standards, but has also recognized private company needs through the issuance of the Private Company Decision-Making Framework. This framework identifies five significant differential factors between private and public companies: number of primary users and their access to management, investment strategies of primary users, ownership and capital structure, accounting resources, and learning about new financial reporting guidance.

For this assignment, select two of these differential factors that interest you, explain why, and analyze their implications. In your own words, describe each factor, how it differs from public companies, and discuss the associated accounting risks. You should also recommend measures to minimize those risks. Additionally, identify which components of the balance sheet are most likely to be affected by these factors, noting both potential positive and negative impacts based on what you have learned during the course.

This assignment must follow Strayer Writing Standards (SWS), and your paper should be 2 to 4 pages in length, citing credible sources to support your analysis. Focus on evaluating liabilities, assessing GAAP and IFRS standards, and utilizing the FASB Accounting Standards Codification for research.

Sample Paper For Above instruction

Analysis of Differential Factors in Private Company Accounting Principles

Introduction

Accounting principles for private and public companies differ significantly due to their distinct operational structures, stakeholder needs, and regulatory environments. The Financial Accounting Standards Board (FASB) has recognized the necessity to adapt standards for private companies to better reflect their unique circumstances. The Private Company Decision-Making Framework highlights several differential factors impacting financial reporting and accounting decisions. In this paper, I will focus on two of these factors: ownership and capital structure, and learning about new financial reporting guidance, exploring their implications, associated risks, and potential impacts on the balance sheet.

Ownership and Capital Structure

This factor pertains to the composition of ownership and the types of shareholders within private companies. Unlike public companies, which often have dispersed ownership with shares traded on stock exchanges, private firms typically have concentrated ownership, often comprising family members or a small group of investors. This concentrated ownership influences decision-making processes and the application of accounting standards.

From an accounting perspective, private companies often have more flexibility in financial reporting to cater to specific informational needs of owners. However, this flexibility introduces risks such as less rigorous adherence to GAAP principles, which could result in financial statements that do not accurately reflect the company's financial position. To mitigate these risks, private companies should establish internal controls and perform regular audits, aligning their reporting practices with GAAP where possible, to ensure clarity and transparency.

Learning About New Financial Reporting Guidance

The second factor concerns how private companies learn and adapt to evolving financial reporting standards. Unlike public companies that are heavily regulated and have dedicated accounting resources, private firms often have limited resources and less access to the latest guidance. This may lead to delays in implementing new standards or inconsistent application, potentially undermining the reliability of their financial statements.

Risks associated with this factor include non-compliance and misinterpretation of new standards, which can result in non-compliance with GAAP and decreased credibility with stakeholders. To address this, private companies should invest in ongoing training and engage professional services for updates on standard changes. Developing relationships with accounting professionals and industry associations can facilitate easier access to new guidance and best practices.

Impact on Balance Sheet Components

The ownership and capital structure of private companies significantly influence components such as equity and long-term liabilities. For instance, retained earnings may be less transparent due to discretionary adjustments, affecting the accuracy of shareholders' equity. Similarly, the reporting of long-term liabilities like debt or lease obligations could be impacted if private companies opt for simplified or alternative reporting approaches.

Positively, these differential factors can lead to more tailored and relevant reporting, emphasizing the true financial position of the company. Conversely, negative impacts might include understated liabilities or overstatement of equity, which could mislead stakeholders and affect decision-making processes.

Conclusion

In conclusion, understanding the differential factors affecting private companies is crucial for accurate financial reporting and mitigating associated risks. Ownership concentration influences reporting flexibility and accuracy, while the approach to learning and applying new guidance impacts compliance and credibility. Recognizing these factors allows firms to refine their accounting practices, enhance financial statement reliability, and better serve the informational needs of their primary users.

References

• FASB. (2020). Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. Financial Accounting Standards Board. Retrieved from [URL]
• Financial Accounting Standards Board (FASB). (2023). Accounting Standards Codification. Retrieved from https://asc.fasb.org
• Forbes. (2023). The State of Private Companies in the U.S. Retrieved from https://www.forbes.com
• Holt, G. (2021). Accounting for Private Companies. Journal of Accounting, Auditing & Finance, 36(2), 245-259.
• Wells, M. T. (2022). Differences between Public and Private Company Financial Reporting. Accounting Horizons, 36(3), 59-78.
• Sweeney, B. (2020). Managing Accounting Risks in Private Firms. CPA Journal, 90(5), 18-22.
• Lee, S. (2021). Private Company Financial Reporting Challenges. Financial Executive, 37(6), 44-47.
• Jones, A. (2022). Navigating FASB Standards for Private Companies. Journal of Accountancy, 233(1), 32-36.
• Smith, R. (2023). Improving Private Company Transparency. American Journal of Business Education, 16(4), 203-212.
• OECD. (2021). Private Company Governance and Financial Reporting. Organization for Economic Co-operation and Development. Retrieved from https://www.oecd.org