Financial accounting theory Essay Example | Topics and Well Written Essays - 2500 words

Financial accounting theory - Essay Example Hitherto GAAP have been developed for all type of entities, be those smaller or larger and public or private. Development of alternative accounting standards on the basis of size of the entity is like preparing students at earlier stages to cope with burden of higher studies. But in business the smaller entities some time carry more accounting complications than larger entities as generally less or reduced number of regulatory compliances create a habit of carelessness and thus allowing smaller problems growing into complexities. Before analyzing the needs of smaller entities for alternative GAAP, it is pertinent to ascertain the present international scenario. In United States private companies are not even required to issue financial statements, what to talk to issuing compliances in the shape of standards. Private entities can assess the cost and benefit before following the reporting standards out of the three alternatives available to them. First is to follow the US GAAP in full; the second alternative is reporting under GAAP but such entities can depart from one or two alternatives; and the third alternative is to adopt OCBOA (other comprehensive basis of accounting). UK presents an altogether different approach towards smaller entities. Financial Reporting Standards for Smaller Entities (FRSSE) were developed in 1997 and those were made applicable to smaller and private entities defined and distinguished on the basis of specifies thresholds in sales, assets, and number of employees. With the advent of International accounting standards and their convergence with local standards, the issue of separate standards for smaller entities have again been taken to the fore, mainly because smaller is larger in numbers and they do not need to waste resources comparing the benefits they would receive. Convergences with IFRS are progressing but the issue has remained the same when FRSSE were required on establishment of FRSs.