Small Business Shared Interest Group

Hi all,

I'm excited to be part of the Shared Interest Group. I would like to understand how everyone is streamlining accounting policies for small bussinesses that are growing. Given that strict adherence to US GAAP can be quite expensive, how do you determine best accounting methods and policies compromising financial integrity? 

Thanks,

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Sindhuja Selvakumar CMA
Finance Associate
Coimbatore TN
India
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I think one of the main considerations is the needs of the users of the financial statements.  In the U.S., most small businesses who require GAAP financial statements are fulfilling a bank reporting requirement and there may not be much wiggle room for anything but strict adherence to GAAP.  

With the passage of recent accounting changes such as ASC 606 Revenue Recognition and ASC 842 Leases, despite FASB's efforts to make GAAP compliance easier through the issuance of private company alternatives, we've seen some small businesses (usually those without bank reporting requirements) switch to other bases of accounting than GAAP, such as income tax basis or modified cash basis, because they feel these fit their financial reporting needs without compromising financial integrity.  However, one of the major factors to consider when adopting a non-GAAP basis of accounting, especially for a growing business, is future desires to become publicly-traded, which would then require conversion to GAAP reporting.  

Our small business group has advocated for FASB's continuance of private company alternatives and other methods of simplifying GAAP for small businesses.  Recent private company alternatives have eased reporting in several important areas such as goodwill, derivatives and leases.

I'd love to hear other members' thoughts on what can be done to streamline GAAP reporting.  And are there specific existing private company alternatives that you find most useful?

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Amanda Bernard CMA,CPA,CFE
Director/Manager
Douglassville PA
United States
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I convert all of my clients over to GAAP when they come on board. It's written into my engagement letters. Of course, all of my clients are single location businesses and most have less than 10 employees so adhering to GAAP usually falls to me to maintain a few schedules, namely Insurance, Fixed Assets, and Accruals/Deferrals. They are also mostly service-based industries so there are not many long-term revenue contracts to contend with. I have found an excellent lease accounting software I use for all of my clients that allows me to easily follow ASC 842.

I also take in mind reasonableness and immateriality. Payroll is one accrual/deferral I usually do not do for my clients. That particular activity does not help my clients in anyway and takes more time than it is worth. Anyone looking at their financials doesn't question the slight bump in those months where there are 3 pay periods if they are on a bi-weekly pay structure.

Another reason to have small businesses follow US GAAP is for Bonding or Surety purposes. One of my clients requires a bond each year to be able to bid on some projects. To help make things easier in the bonding process, he has his financials reviewed by an external auditing CPA firm. While reviewed financials can be presented in a basis other than US GAAP, this particular firm insists on US GAAP. Having the reviewed financials also helped my client avoid being in default on a loan. I was able to prove that their Debt Service Coverage Ratio was within the lender's requirements when their tax return was outside of those requirements. I then had to explain the differences between the reviewed numbers and the tax return, but I knew what those were and had my answers ready.

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David Belnap, CMA, CSCA, CPA
Belnap Accounting
Hollywood FL
United States
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Streamlining accounting for small businesses involves strong documentation that you can formulate a plan with approval from stakeholders and implementing technology. The following steps may be considered'

1. Identify risks, opportunities and priorities.
2. Use accounting software and automation.
3. Use efficient processes.
4. Collaborate with partnerships and other businesses.
5. Provide value-added services.

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Karen Gayle EA
Accountant
Bronx NY
United States
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