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In this assignment, you will compare accounting principles for private and public companies. As you may have discovered as you’ve reviewed the materials for this course, most of what is learned in accounting courses focuses on public companies, not private ones. GAAP, as you have also learned from your studies, maybe followed by private companies, but it is only required to be used by publicly traded companies. FASB, of course, is designated by the SEC to establish and improve GAAP, so their focus is primarily on publicly traded companies.
As noted in Appendix A of your course textbook, FASB has also recognized the importance and potential impact of private company financial statements. According to Forbes, out of the 5.7 million firms with employees in the United States, less than 1 percent have shares listed on a U.S. exchange. Although we tend to think of private companies as small companies, the reality is quite the opposite, with private firms accounting for 86.4 percent of U.S. firms with 500 or more employees.
In conjunction with your textbook readings, conduct an internet search for the FASB Decision-Making Framework for private companies. Focus on locating the five significant differential factors FASB has identified.
For this assignment, write a 2–4 page paper in which you:
Select two of the differential factors identified by FASB that are of interest to you, and briefly explain why.
In your own words, explain the factor and why it is different from a publicly traded company.
Identify the accounting risks associated with each of your chosen factors. What would you recommend to minimize those risks?
Based on what you have learned this quarter, what components of the Balance Sheet have the most potential to be impacted by the differential factors you have chosen? Identify both positive and negative potential impacts.