New Accounting Standards for Small Businesses

In an effort to simplify accounting for small business owners, the American Institute of Certified Public Accountants (AICPA) recently released an easier way for small and medium size business owners to create financial statements for any interested party (managers, banks or investors) an improved way to view a company’s finances.

What does it do?

The new model was created for private, for-profit businesses (so not GAAP compliant) and won’t help you file taxes. Rather, it gives reliable financial statements—for business owners, lenders and bonding companies (for construction businesses). It is meant to be more comprehensive than tax or cash accounting and additionally designed to create a single format all small and medium size businesses can use. In practical terms, the new framework uses historical costs versus fair-value estimates and gives business owners the ability to adapt and produce a financial statement appropriate for their needs. There is also the hope that as more businesses adopt the new framework, more reliable information about small and medium sized businesses and therefore make it easier for those business owners to compare their growth to others.

Who is it for?

According to, the standards are for private companies with $300,000 to $100 million in annual revenue. Bob Durak, Director of Private Company Financial Reporting at AICPA said, “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. These new standards are likely to be used by owner-managed firms that don’t have an in-house accounting team. If a company expects to go public in the near-term, it may want to avoid these non-GAAP accounting principles.”

Do I have to use it?

At the moment the format is completely optional. However, there is also the hope that as more businesses adopt the new framework, more reliable information about small and medium sized businesses and therefore make it easier for those business owners to compare their growth to others. However, to gain that kind of acceptance it will need the blessing of accountant and bank lenders. That might not be as easy as the AICPA thought.

Last month, the Institute of Management Accountants (IMA) released a statement announcing their opposition to the AICPA option. According to their press release, “An accounting association body [in this case, the AICPA] should not be setting what could be perceived as authoritative standards, which in fact are non-authoritative and thus difficult to regulate or enforce…Private companies need to maintain credibility with sound internal controls while maintaining the freedom to innovate and create sustainable value for stakeholders. However, it is IMA’s assertion that businesses should not risk that credibility by adhering to a framework created by a group other than a national standard-setting entity.”

For More Information
Talk to your CPA or visit the AIPCA site.

10 Questions to Ask Before Hiring an Accountant for Your Small Business

Now that the 2013 tax season has gotten into high gear, you may be considering using the services of an accountant- whether to help you with your tax preparation or to get your financial reporting in order.

But where and how should you start looking for the right candidate? Making a poor choice with a hired accountant can cause more headache and end up costing you more money than many of your other employees can because this person will have the ability to access and manipulate any sensitive financial data. So how do you find the right accountant for the job, especially if your knowledge of finance and accounting is limited?

Here are ten questions every small business owner should ask a prospective accountant before bringing this person on board:

1. Who are your clients and what industries are you familiar with? You want to be certain that your accountant understands your type of business and has experience working with clients within your industry. Companies in the construction industry, for example, will have a different setup and methods of operation that includes dealing with contractors and buying heavy machinery, than a restaurant or a store that may be dealing with tips and perishable inventory.

2. What is your availability? Are you looking for an accountant or an accounting firm to only help come tax time or are you looking for year-round help? Make sure that your accountant of choice follows the same schedule that you are looking for.

3. What are your qualifications? One of the things that you will need to determine before you go about hiring an accountant is what you expect to get out of the arrangement. Many financial experts suggest that small businesses hire a certified public accountant (CPA), because CPAs must go through rigorous certification requirements and will likely have more experience with broader financial planning issues. But, you have other options, such as an Enrolled Agent (EA). EAs are certified by the federal government specifically to handle taxes and are often former IRS agents with extensive experience dealing with audits. In some cases, a bookkeeper or professional tax preparer will be more than adequate.

4. Who will be doing the work? Be aware that many accountants outsource work to third parties. This can become an issue if you want to speak to someone who is familiar with your accounts. If you are working with an accounting firm, you should also find out who exactly will be processing your financial data.

5. What is your approach to accounting? 
You want to find out how aggressive your prospective accountant is. Some accountants want to write off everything they possibly can, while others are more focused on avoiding the red flags that can lead to an IRS audit. Decide which approach appeals to you and your business and then make sure your hired account abides by the same philosophy.

6. How much do you charge? Some accountants have an hourly rate while others have a set fee for certain tasks. Make sure you are clear about their billing preferences and any other expenses before deciding to take someone on.

7. Can you give me advice about my accounting system? If your accountant has been working with businesses in your industry then he or she should have a working knowledge of what works and what doesn’t in terms of financial recording and reporting systems. This person should also be able to advise you on what accounting software programs to buy for business use.

8. How will we communicate and exchange information? Make sure you are clear about how you will send financial information and documentation to your accountant. Will you be physically meeting with this person or will the exchange of information and meetings be electronically?

9. How often will we communicate? Every accountant will be different when it comes to the frequency of communication as well. So make sure that you are clear about this from the beginning and that you can feel comfortable asking questions when you need to.

10. Can you tell me about such and such tax deduction? If the accountant you’re speaking with is unfamiliar with typical deductions or financial reporting terms, you should be wary because that might be a red flag that he or she isn’t knowledgeable enough to handle your business’ financial accounts and information.