New Non-GAAP “Private Entity” Flexible Financial Reporting – Will This Work?
The AICPA has recently announced a financial reporting framework for what are called “private” or “small-” and “medium-sized” entities or businesses. Please click on the following link for the AICPA announcement, Click Here. Here is a link to an AICPA website page that provides guidance tools although the AICPA appears to disclaim responsibility or support for the tools, Click Here. And, if I am not mistaken, it has also been proposed that nonprofits might also be able to use the new flexible accounting approach – click the following link for the status of that proposal, Click Here.
For those of you who don’t really follow accounting related topics, the FASB and the Private Company Council have been working on a project to allow private (i.e., for general reference, non-public) entities some flexibility in the manner of their accounting for financial transactions and reporting. I have to disclose that I have some concerns about this “flexible accounting” approach, but I guess that we’ll just have to see how it works – sort of like how we get to experience how new enacted legislation works, or doesn’t.
I do predict that it will become more important for the potential users of private entity financial statements (i.e., people who rely on those financial statements), such as financial institutions (i.e., lenders), insurers, attorneys, governmental entities, funding providers, businesses that invest in or acquire other businesses, and people in the nonprofit world including people who donate/fund and nonprofit executive officers, accountants, boards and audit committees (if it is determined that nonprofits can use the flexible accounting) to have a better understanding of GAAP, the new non-GAAP or flexible accounting for private entities (including how GAAS will or might need to be modified for non-GAAP reporting entities), and what is allowable and what isn’t.
Frankly, it seems to me that you will lose some continuity or comparability between different entities. It reminds me of when I worked for Wells Fargo Bank for a short time many years ago in a department then called credit research and analysis – we would analyze the financial statements of borrowers or potential borrowers and move the numbers around (including information provided in the footnotes) so that the Bank would have more reliable and comparable numbers and information for borrowers in a format that was more useful to the Bank.
Onward and more to follow on this I am sure.
Dave Tate, San Francisco Attorney and CPA (inactive)