How often should these financial reports be prepared?
They should be prepared at least annually. Depending on circumstances, a third party may require an annual audit and a quarterly compilation or review. The quarterly review provides something that is not quite as extensive, but gives some comfort that you are going down the correct path.
What is IFRS and how will it affect my business?
While U.S. companies use generally accepted accounting procedures (GAAP), most of the rest of the world uses International Financial Reporting Standards (IFRS). There is a push — especially at the public company level — to make those two systems consistent. So if you are getting a report from a foreign company, you understand it just as well as a U.S. company, and vice versa.
How will these changes shake out?
At one time, a complete switch to international standards was discussed, but I think it will be more of a convergence — a blend of GAAP and IFRS.
A timetable has been set for SEC companies, and although it’s at least four years away, people are starting to talk about it now because they’ll have to start recording things now to be able to report the information correctly.
The key point is how it will affect private companies. There is going to be a change in what is reported and how it gets reported. Some changes you’ll look at and say it doesn’t make sense to me, it doesn’t help me.
Will the changes be useful for private companies?
Like with all changes, people will resist. Some of the changes will be useful but some will add additional complexity with no added value to the owner of the private company. In fact, there is a movement to have separate reporting requirements for private companies.
What would be the advantages of separating financial reporting for public and private companies?
The Enron fiasco caused a shift in financial reporting, requiring more regulation in accounting and many more disclosures. Many of these disclosures are applicable to public companies, but when applied to private companies, they lose their significance.
So a private company’s financial statements have become more complex because of additional disclosures. The owner of the private company does not see how the additional complexity adds any value to their financial statements. Having separate reporting will eliminate some of this unnecessary reporting complexity.
Patrick T. Carney, CPA, is a partner with Skoda Minotti. Reach him at (440) 449-6800 or [email protected].
