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Closing the GAAP

Will small, private companies finally get their own accounting standards? Many entrepreneurs certainly hope so.

This story appears in the January 2006 issue of Entrepreneur. Subscribe »

For decades, private-company CEOs have clamored for an alternate accounting standard. The Generally Accepted Accounting Principles that govern public companies, they argue, are both irrelevant to their businesses and too onerous to maintain. Until recently, not much had changed. But a number of factors, Sarbanes-Oxley chief among them, have pushed the "Big GAAP vs. Little GAAP" debate back to center stage, and more small businesses, lenders and investors have been loudly voicing their dissatisfaction with the status quo. This time, something may actually come of it.

For one thing, the American Institute of Certified Public Accountants decided it was time to take an active role. "The major complaint we were hearing was that people just weren't using the information coming out of GAAP standards and the resulting financial reporting," says Dan Noll, director of accounting standards at the New York City-based AICPA. So the association's Private Company Financial Reporting Task Force conducted a survey of private-company key constituents, such as lenders, business owners and shareholders, to find out how relevant GAAP-based reporting was. The task force's report, released in March of last year, found that quite a few respondents found at least parts of GAAP not particularly useful.

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