Accounting For Dummies®, 4th Edition

13.3. Comparing Private and Public Business Financial Reports

NOTE

As I explain in Chapters 2 and 12, the accounting profession is presently considering whether private companies should be relieved of the onerous burdens imposed by certain accounting and financial reporting standards. The main, almost exclusive focus of the standard setters over the last three decades has been on the accounting and financial reporting problems of large public companies. There seems to be a consensus that many of these complex standards are not relevant to smaller, private businesses — and that the users of their financial reports are not well served by the standards. So far, there has not been a lot of concrete progress in identifying which particular standards should not apply to private companies. But it's still early in the game, so stay tuned.

Although accountants are loath to talk about it, the blunt fact is that many (perhaps most) private companies simply ignore some authoritative standards in preparing their financial reports. This doesn't mean that their financial reports are misleading — perhaps substandard, but not seriously misleading. In any case, a private business's annual financial report is generally bare bones. It includes the three primary financial statements (balance sheet, income statement, and statement of cash flows), plus some footnotes — and that's about it. I've seen private company financial reports that don't even have a letter from the president. In fact, I've seen ...