Privately-Owned Manufacturers Moving Away from US GAAP
Published on by Brad Sack in Assurance, Manufacturing
Privately-owned manufacturers using the US Generally Accepted Accounting Principles (GAAP) as their accounting basis have found themselves spending more and more of their resources complying with US GAAP requirements – with little or no benefit for the company or the users of its financial statements.
Lots of pain, little gain
US GAAP continues to become more and more complex – and a large percentage of manufacturers found the recent adoption of new revenue recognition guidance under US GAAP painful and without benefit. On the heels of new revenue recognition guidance comes new lease accounting rules in 2022, which promise to add even more discomfort with, again, little value realized by privately-owned manufacturers and their financial statement users.
The GAAP backstory
US GAAP is the method of accounting used by most companies in the United States for their financial statements, regardless of size. However, many of the more complex provisions within US GAAP are designed with multi-billion-dollar companies in mind – organizations with more resources, and financial statement users with more sophisticated needs than most privately-owned entities.
Beyond that, many of the complex provisions forced to be adopted by private companies to stay in compliance with US GAAP result in adjustments and disclosures that are not utilized by its users.
Why use GAAP, then?
Private company financial statement users, primarily lending institutions through loan provisions, require most users to use US GAAP. Since alternatives to US GAAP are less known and less understood by financial statement users, there is a reluctance to allow the use of these alternative methods.
Cutting pain, building gain
Through proactive discussions with clients and their financial statement users, we’re seeing a significant increase in the number of users willing to accept financial statements on a basis of accounting other than US GAAP.
Through these discussions, we’ve learned that users have found financial statements presented on certain alternative accounting methods, such as the income tax basis and International Financial Reporting Standards (IFRS) for small and medium-sized entities (SMEs), provide the information users need while reducing cost and pain for the privately-owned entity. Talk about a win-win.
Interested in discussing alternative accounting methods and reducing the pain of US GAAP compliance for your small or mid-sized entity? Set up a free consultation with a member of our manufacturing team – either through our website or by giving us a call at 513.241.8313. We’re here to help.