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As Grant Thornton CEO Stephen Chipman noted in his opinion article “A Job for the PCC,” the PCC will be reviewing and setting standards or modifications to address the needs of users of private company financial statements. Many private companies, he wrote, “have little interest in raising capital from the public,” are not publicly traded, but are not really small businesses.
Mr. Chipman indicates that his firm services “more than 6,000 audit clients, nearly 90 percent of which are private companies.”
And therein lies the problem!
There is no doubt that those “middle market” businesses need relief from the current standards and modifications of U. S. GAAP and must be at the top of the PCC charts.
But there seems to be little consideration or understanding of Bill’s Plumbing and Heating or The Side Street Food Market. These are the small businesses that are the forgotten people of the standard setters. There are millions of these entrepreneurs in the United States who, when in need of financing, are plagued by the same requirements that the public companies must follow.
The cost of auditing this type of small business is prohibitive, and many CPAs who used to do audits of these firms have discontinued that body of work. At best, they now do compilations for their clients, which are not looked upon favorably by credit grantors.
The rules and regulations of GAAP usually have little bearing and meaning to the small business owner and should be recognized as unwarranted by credit grantors. To continue to burden them with meaningless rules and regulations is discrimination of the worst kind.
The AICPA and the regulatory agencies seem to have little or no understanding of these “forgotten businesses.” The Institute voices concern for their plight but takes no action to remedy the situation. (I hope because they do not really understand the business).
And, of course, there is the cost to promote and publicize any new regulations. It took a long time and a tidy sum of dollars to get bankers and other credit grantors to accept the differences between audit, review and compilation, and it is somewhat understandable that the AICPA would not relish a repeat of the process.
But in fairness and in an effort to open credit lines to the “mom and pop” businesses, there must be a revision of standards to help these organizations. Devising regulations for middle-market business organizations would not suffice for the small businesses of the nation. They deserve and must have rules and guidelines specifically devised for small business, not a warmed over, somewhat reduced version of the regs that will apply to the larger, midsize private companies.
It would be advisable, even at this late date, to add some CPAs who actively deal with these small businesses to the roster of the PCC. There are CPA organizations such as the National Conference of CPA Practitioners who service small business and really understand their requirements. They could be of great help in bringing this specific point of view to the PCC.
Edwin J. Kliegman, CPA, is the founder of Marcum & Kliegman (now Marcum LLP), a past president of the National Conference of CPA Practitioners, founder of the Nassau/Suffolk Chapter of NCCPAP, and former chairman of the NYSSCPA Small Practice Management Committee and the Furtherance Committee.