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Executive summaries of Should Small Businesses Adopt New Accounting Standards - Essay Example

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The American Institute of Certified Public Accountants (AICPA) Director Bob Durak defines small and medium sized businesses (SMEs) as those businesses that are usually managed by their owners. This means that they operate as sole proprietorship businesses. Such businesses do not…
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Executive summaries of Should Small Businesses Adopt New Accounting Standards

Download file to see previous pages... The AICPA financial reporting framework (FRF) revolves around various accounting terms such as debts, credit, risks, profits and losses as well as all assets and liabilities belonging to a business. Bob argues that the current financial reporting framework is an improvement of the previous frameworks. According to him, the improvement is meant to make it easier for SMEs to prepare their financial statements in a much simpler and consistent manner. For instance, with the current reporting framework business A and B can compare their financial statements over the years as they are prepared under specific guidelines as provided by the AICPA.
The new financial reporting framework guides the SMEs on preparation of full financial statements. These include the statement of financial position, statement of changes in equity, statement of cash flows and statement of operations. The SMEs are also guided on how to prepare relevant notes that serve as supporting references to the financial statements. AICPA emphasizes on the need of preparing financial statements; for the benefit of the management as well as external users such as bankers and financiers. The purpose of improving on the accounting standards is to ensure that the financial statements of a business capture its economic performance, the economic obligations, resources and equity as well as changes on the same. Bob recommends adaption of this framework as it offers simpler methods of accounting.
In an interview with Bob, Patrick notes that the current financial reporting framework is a bit complex for small and medium sized businesses as it entails detailed financial reporting most of which is only necessary for big industries. Bob adds that this is the main reason as to why the financial reporting framework was reviewed. He argues that they had the troubles SMEs go through in compliance with this tiring framework in mind as they redrafted ...Download file to see next pagesRead More
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