Big GAAP/Little GAAP: Will The Debate Ever End?

Abstract

There has been an ongoing debate for decades, especially since the inception of the Financial Accounting Standards Board (FASB), over the appropriate application of generally accepted accounting principles (GAAP) to private companies. This so-called Big GAAP vs. Little GAAP debate has now come to a crisis point. The Financial Accounting Foundation (FAF) has taken a position that is contrary to the recommendations of the Blue Ribbon Panel on Standard Setting for Private Companies (the Panel) presented in January 2011, despite having been represented on the Panel. The American Institute of Certified Public Accountants (AICPA), also represented on the Panel, has responded by taking a strong stand in favor of the Panels position and against the new FAF recommendation and Invitation to Comment, published on October 4, 2011. Additionally, the International Accounting Standards Board has developed a set of reporting standards for small and medium size enterprises (IFRS for SMEs) that has not been recognized in the US. In this paper, we examine the history of the Big GAAP/Little GAAP debate in the US and internationally. We find substantial support for reducing requirements of private companies and recommend that International Financial Reporting Standards for Small to Medium-Sized Enterprises (IFRS for SMEs) be used for public companies of all sizes to be consistent with standards that have been accepted globally.