Stand-Alone Accounting Standards for Private Enterprises

Introduction

A private company is a commercial organization (company), owned by a citizen or a member of the family to share property rights. Owner of a private company conducts its affairs in its own interests at their own risk, and receives all the income from the activities of the company. The owner can take over control of the company, may hire a manager for this wage. The owner of the company can hire and fire workers and monitor their behavior with regards to the activities and interests of the company. The owner of the company has the right to sell or transfer the rights to it to another person. Since private companies have significant differences in their structure, working, reasons for existence and decision making, their regulations with respect to accounting should also be different.

Discussion

Before analyzing the need for standalone accounting standards for private companies, some differences between public and private enterprises must be noted. The major difference for which the standard should be different is based on the pursuit of profit. Unlike private enterprise, the public company does not seek to maximize their profits, sales or share of tagging, but seeks the general interest of the community to which he belongs. Public companies sometimes sell part of its shares to private individuals, but are considered public as long as 51% of the shares are held by the public sector. Difference between private and public enterprise is essentially legal. To sum, it all depends on who owns the capital of the company; if the company is majority owned by a public entity (state, local authorities etc.) the company will be considered public while it will be private if it is owned by private entities. The process of decision-making public enterprise differs from those in the private sector in that the power of the state initiative, which is exercised by setting goals and monitoring their activity.

Considering these differences and recent debates of the proposition of stand-alone standards for private enterprises, it can be derived that this is mainly because of issue of taxation. Also, since the legal and regulatory structures are different for both kinds of enterprises. Thus, in my opinion, there should be different standards for private companies. Another justification to it is that the intention behind the formation of private enterprises are different, capital structure and funding procedure are even dissimilar; applying similar standards would lead to discrepancies as well as misinterpretations. If not entirely different standards, there should be separate clauses and amendments with respect to private enterprises.

For this purpose, the Council for private companies (Private Company Council, PCC) was created by the U.S (Private Company Financial Reporting, 1-3). Financial Accounting Foundation in May of this year. It plans to address the uncertainty around income taxes; it is one of the first problems in their list. Interpretation FIN 48 is not new. After the release in 2006, it was attacked by numerous private companies that want more formal requirements of the standard on accounting ...