Friday, July 10, 2009

New Option for Private Companies in Streamlined IFRS

Very interesting article in The Journal of Accountancy that might be a very attractive option for companies: use a slimmed down version of International Financial Reporting Standards ("IFRS") as the basis for accounting instead of US GAAP.

This would be very interesting. Many privately held companies continue to complain, rightfully so, about the complications of US GAAP. Much of the accounting pronouncements coming out these days seem pointed at larger, publicly held companies and can be very difficult and expensive to implement. Privately held companies have been asking for an alternative, essentially a GAAP Lite.

This might be it.

I encourage you to read the article. But I am going to copy one key paragraph:

Private companies in the United States can prepare their financial statements in accordance with U.S. GAAP, an “other comprehensive basis of accounting” (OCBOA), such as cash- or tax-basis; or full IFRS, among others. The governing Council of the AICPA recognizes the IASB as an accounting body for purposes of establishing international financial accounting and reporting principles. Full IFRS and IFRS for SMEs are generally accepted accounting principles.

"SME" stands for small- and medium-size entities.

I admit I have not read these standards yet, but on the surface I can see two potential problems:
  1. Loan agreements often specify US GAAP be used in financial reports provided to the lender. It could take time for banks and other lenders to understand this different basis of accounting and accept it.
  2. Accountants - both those in public accounting and those inside of small- and medium-sized entities don't know this basis of accounting and it will take time to learn how to use it.

That being said, I look forward to following this option.

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