From the New York Times, on possible new, relaxed accounting standards for smaller companies:

The parent organization of the Financial Accounting Standards Board will propose on Tuesday that a new body be set up to modify accounting rules for private companies, some of which have complained that existing rules are too complicated and costly.

…
In a letter supporting the establishment of a separate board, William A. Pickert, an accountant in Wichita, Kan., said he had been “alarmed at the increasing frequency of the issuance of financial statements with GAAP departures. While once a very rare situation, this practice is becoming routine.” He said lenders would accept such statements because they understood some rules were overly burdensome.

The institute of accountants, in encouraging letters to support a separate standard-setter, argued that “history and the current environment clearly show that FASB cannot effectively balance the competing needs of both the public company and private company areas.” It added that “it does not make sense to incur significant cost to comply with standards that have become ever more irrelevant in the private company world.”

This is an excellent idea. Currently, FASB is in a long-term process of integrating GAAP (which are the accounting principles used in the United States) with IFRS (which are used elsewhere in the world). This integration will benefit multinational corporations, with operations in many countries, which will only have to deal with one set of accounting standards.

But small companies won’t benefit from global harmonization; they would only have to deal with the significant cost of transition. And to be honest, the integration of GAAP and IFRS is important mainly to the top few hundred corporations in the US. These new relaxed standards for small businesses are appropriate since they are financed primarily by banks, rather than public shareholders. Hopefully, these new standards will relieve unnecessary burdens and foster investment—and job creation—in these businesses.