Cyber Week Sale! 50% Off All Access

New Accounting Framework to Ease Burdens for Small Businesses Two U.S. accounting organizations aim to give business owners streamlined options for financial reporting.

By Catherine Clifford

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

This article was updated with additional reporting at 5:20 p.m. Eastern.

If the thought of organizing your business financial statements gives you a headache, announcements from two leading U.S. accounting trade groups today should offer some welcome relief.

The American Institute of Certified Public Accountants released the framework for a new financial reporting option for small and midsize businesses which aims to save some business owners time and money.

The new framework, which was created by a team of certified public accountants, is an option for only private, for-profit businesses. Any company that is publicly traded is required by the U.S. Securities and Exchange Commission to file financial documents according to Generally Accepted Accounting Principles, known as GAAP standards. This new framework is not compliant with GAAP.

Related: Best Credit Cards for Small-Business Owners in 2013

Millions of businesses don't have to comply with GAAP standards but still need financial statements for applying for loans, insurance plans and in management planning, according to AICPA.

Private-companies with $300,000 to $100 million in annual revenue ought to consider the new framework, according to Nicholas Bird, a partner and owner of Lucid Books accounting firm in Orem, Utah. Bird expects that he will be telling his clients about the new option.

"What we hear when we talk to these small businesses and the CPA's that serve them is that they are looking for another option," says Bob Durak, the director of private company financial reporting at AICPA. These new standards are likely to be used by owner-managed firms that don't have an in-house accounting team, says Durak. If a company expects to go public in the near-term, it may want to avoid these non-GAAP accounting principles, he says.

The new framework for preparing financial statements uses historical costs and avoids the complicated fair-value measurements, says Durak. Also, it allows businesses to tailor their financial statements to the specific situation for which they are drawing them up, among other changes. This built-in optionality cuts out unnecessary work, Durak says.

Related: iPad, Tablet Point-of-Sale Systems Gain Popularity

If you think that your business might benefit from the simpler financial reporting, you should see your certified public accountant, says Durak. The AICPA will be educating CPAs about the changes and providing them with tools to understand when the new framework is beneficial.

Another benefit of the new framework is that, if it is widely adopted, it is expected to make it easier for you to compare the growth of your business with other businesses, says Bird. The benchmarks will be parallel. "It would be apples to apples instead of apples to oranges," as with the non-GAAP accounting systems used in private companies currently, says Bird.

Also Monday, the Financial Accounting Standards Board announced that it has endorsed three alternatives to U.S. GAAP reporting standards and released them for public comment. Unlike the new framework from AICPA, which can be used immediately, the proposals to GAAP reporting practices endorsed by FASB need to be finalized and voted upon. The three proposals aim to streamline the financial statements that private companies subject to GAAP financial requirements have to adhere to, says FASB Chairman Leslie Seidman, in a statement.

Related: Your Startup's Top 3 Most Trusted Accounting Allies

Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Business News

'Brazen, Targeted Attack': UnitedHealthcare CEO Fatally Shot Outside Hotel in Manhattan

Brian Thompson was killed in what the NYPD says was a targeted attack.

Starting a Business

Should You Start a Business From Scratch or Buy an Existing Business?

Find out the pros and cons of two different strategies for being your own boss.

Marketing

6 Steps to a Simple and Effective Content Strategy

Strategy can be an intimidating word, but it doesn't have to be. Follow these simple guidelines to make sure your next piece of content — and every one thereafter — rings true to your brand.

Business News

Hackers May Be Reading Your Texts — U.S. Officials Urge All Americans to Use Encryption Messaging Apps in the Wake of Massive Cyberattack

The FBI and security officials warn that messages sent by AT&T, Verizon, and Lumen Technologies customers are vulnerable.