Accounting for Private Versus Public Companies

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The FASB has a total of five factors proposed as areas where financial reporting and accounting for private companies may differ from organizations. Among the five factors, two that are interesting include ownership and capital structure, and number of primary users and their access to management. The two factors are identified for the current paper because they are areas where there is clear difference in their application for private and public companies. It is vital to note that the FASB proposed the five differential factors with the aim of highlighting the areas where accountants for public and private companies may differently approach the accounting and financial reporting work.

Explain the factors and why it is different from a publicly traded company

Public companies have numerous primary users of financial statements when compared to the privately owned firms. Some of the primary users of financial statements in the case of public companies include main stakeholders like current and potential future investors, employees, shareholders, suppliers, creditors such as bond-holders, the executive management, and the government regulators. Public companies raise their debt capital from the public through sale of stocks on exchange markets. Some issue bonds and debentures in the stock markets. The buyers of the stocks, both ordinary and preferential ones, are members of the public who must understand the financial status of the company by analyzing its statement of income and financial position. It is only with such information that potential investors and creditors like banks can make informed decisions regarding putting their money in the organizations. Moreover, the government agencies related with business regulations are highly involved in the monitoring and controlling the operations of the public organizations to ensure the funds of investors and creditors are well-guarded and not swindled by ill-motivated entities. Most of these users of the financial statements in public companies have highly limited access to the management of the entities.

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