Small companies are feeling the pinch of increased regulation these days. Many CFOs of small businesses say they are being unfairly punished for the indiscretions of such large companies as Enron, WorldCom, and Tyco by having to implement new rules that are disproportionately time-consuming and costly to carry out.
To answer these concerns, the Financial Accounting Standards Board recently established the Small Business Advisory Committee, which will advise FASB on the issues that are important to small companies.
“During the last few years, the focus has been on large public companies and international convergence [of accounting standards],” admits FASB chairman Robert Herz. “We want to make sure the concerns of private companies and small public companies are being heard.”
One of those concerns is that the cost of the new rules, especially for small firms, is not weighed against their benefits, says Ilene Persoff, an accounting professor at the C.W. Post campus of Long Island University. “Some of the GAAP rules are so costly for small businesses that they are looking at alternatives to the activity that triggers the disclosure, rather than implementing the new rules to account for it,” she says.
CFOs welcome the committee, but some remain skeptical about its impact. “I’m not convinced that this is going to solve all the problems,” says Harlan Plumley, CFO of Lightbridge Inc., a telecom outsourcing and software provider in Burlington, Mass. “No one objects to the need for transparency and rapid disclosure; the problem is that it is extremely difficult for small firms to implement [the new rules].” He argues that there should be a threshold of materiality for some compliance efforts.
Herz says that FASB has heard the criticism and has “taken it to heart.” He says the new committee will help make suggestions about including exceptions for small businesses in its proposals. Considerations could include reduced disclosures or longer adoption times for companies under a certain size. The committee, which is made up of small-company CFOs, controllers, lenders, investors, and auditors, met for the first time in May.