Taking Care of Small Business


The Institute’s vice-president for small firm interests describes AICPA programs for small firms and their small business clients.

mall businesses—the fastest-growing sector of the U.S. economy—rely on their CPAs for business advice, making them a core practice area for many practitioners. In recognition of this important relationship, the AICPA provides specialized resources, advocacy and other services aimed at keeping this connection solid.”

This dynamic, new online resource provided by the Private Companies Practice Section (PCPS) offers free tools and information to help AICPA members strengthen their practices and better serve their clients. By clicking on the Resources tab on the center’s home page ( www.aicpa.org/pcps ), members can find sections for closely held companies, not-for-profit entities and many other practice areas. The closely held companies section, for example, contains articles on how to find fraud in private companies or improve the value of boards of directors. The tax section provides news and informative articles on topics such as changes in the tax laws. Other sections address practice management, staffing, succession planning, keeping up with standards and technology and other issues important to firms serving small businesses. The center also contains a wide variety of premium content on subjects ranging from leadership to setting goals for firm partners. To introduce these special resources to practitioners who are not PCPS members, content on the site is available free to all AICPA members until May 15, 2006.

The Institute acts as an advocate for small firms and their clients, monitoring and responding to the many new and proposed standards and regulations in standard-setter boardrooms, in Washington, D.C., and wherever new regulations are being drafted.

Standards overload and complexity, for example, have long been burdens for smaller practitioners, and the current debate centers on whether accounting and disclosure requirements for public companies are appropriate for private companies. In 2004 the AICPA established the Private Company Financial Reporting Task Force to research and report on the financial reporting needs of private companies and the costs and benefits of GAAP requirements ( www.aicpa.org/members/div/acctstd/pvtco_fincl_reprt/index.htm ). Last year a group of members and staff of the Institute and FASB began discussing standard-setting process changes to improve GAAP’s usefulness and relevance to key constituents of private companies’ financial statements.

While these issues are being explored, the AICPA continues to monitor day-to-day standard setting and to offer insights into how various proposals will affect small businesses. The PCPS Executive Committee and its Technical Issues Committee (TIC) regularly review and comment on guidance affecting small firms and their clients.

The TIC has worked with the AICPA Professional Ethics Executive Committee on several revisions to its Interpretation 101-3, Performance of Nonattest Services—a standard that provides guidance on which services can be offered to audit clients. This is a particularly important issue for small companies because they rely on their CPA firms for many kinds of services. Both the TIC and the PCPS Executive Committee have offered comments on frequently asked questions for the interpretation, and the TIC has noted areas in which clarifications or further examples are needed. For more information, go to www.aicpa.org/members/div/ethics/intr_101-3.htm .

Small Is Expensive
Complying with federal regulations costs small companies 45% more than large companies.
Per-employee cost for companies with fewer than 20 employees $7.647
Per-employee cost for larger companies $5,274
Source: U.S. Small Business Administration, www.sba.gov/advo/research/rs264tot.pdf .

The Institute also testifies before Congress on issues important to smaller firms and their clients, in the interest of promoting effective and sensible regulation. For example, last October the Institute published Understanding Tax Reform: A Guide to 21st Century Alternatives, a report that offered a clear overview of many of the issues at stake and recommended 10 policy objectives that should be considered in any tax reform proposal ( www.aicpa.org/taxreform ).

Because tax simplification is an important goal for the profession, the AICPA has testified before the House Small Business Committee on how complexity is eroding voluntary compliance with tax laws. A representative of the Institute’s Tax Executive Committee testified that the lack of deliberation in the legislative process, the frequent tax law revisions and the growing magnitude and complexity of the Internal Revenue Code create serious compliance issues for small businesses. The Institute urged that the alternative minimum tax (AMT) be eliminated; asked for a more objective test for classifying workers as employees or independent contractors; recommended adoption of better tests on the capitalization, expensing and recovery of capitalized costs; and suggested simplifying capital gains and the rationalization of estimated tax safe harbors. The Institute also has recommended that new small businesses be allowed to choose any fiscal yearend from April through November and endorsed a proposal by Senator Olympia J. Snowe (R-Maine) to allow small businesses to provide nontaxable benefits such as flexible spending accounts to their employees.

The Institute also recently endorsed Guidance for Smaller Public Companies Reporting on Internal Control over Financial Reporting, an exposure draft (ED) ( www.ic.coso.org ) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The ED, which provides examples of how small companies can design effective internal controls over financial reporting, supplements a 1992 publication, Internal Control—Integrated Framework, that provides advice to help smaller companies comply with the section 404 internal control requirements of the Sarbanes-Oxley Act.

Finally, because states often enact laws that mirror federal legislation without fully considering their impact on smaller organizations, the AICPA Special Committee on State Regulation stays abreast of legislation and regulations that cascade to the state level ( www.aicpa.org/statelegis/index.asp ) and advises states on their possible consequences.

Many small-business-oriented projects are ongoing efforts, but in some cases the AICPA must create initiatives for unexpected situations. That’s what happened last summer and fall, when hurricanes devastated the Gulf Coast area. The AICPA Disaster Recovery Resource Center ( www.aicpa.org/news/2005/disaster_recovery_resources.htm ) established an online clearinghouse that brought together CPA firms eager to help fellow professionals and the public, offering business recovery tools and information valuable to small businesses in the affected areas; tax, accounting and auditing guidance; and information on how CPAs across the country could help hurricane victims. The Institute also teamed with the IRS to provide assistance to taxpayers at local disaster centers. In recognition of its efforts, the AICPA last fall received an IRS citation of excellence in serving the small business community. Although it mentioned several AICPA public service efforts, the citation specifically commended the Institute for its leadership of the profession’s significant contribution to the launch of the IRS disaster relief project.

Finally, the Firm Volunteer Center, a PCPS initiative, made it possible for CPAs to help their fellow practitioners by providing offices and supplies, technology support, hosting of e-mail servers, help with critical filings, support in reaching clients and even temporary employment and housing.

CPAs who work with small businesses often also serve smaller not-for-profit organizations (NPOs)—many of which look to their CPAs for advice on how to strengthen their audit committees. To help, the AICPA Audit Committee Toolkit for Not-for-Profit Organizations was developed to provide a comprehensive set of best practices that audit committees can adopt ( www.aicpa.org/audcommctr/toolkitsnpo ).

In response to the Sarbanes-Oxley Act, the Institute also developed a tool kit for audit committees of public companies. It covers a wealth of governance topics, from how to develop an audit committee charter and hire a chief audit executive to how to improve executive sessions and evaluate independent auditors. It’s available free from the AICPA Audit Committee Effectiveness Center at www.aicpa.org/audcommctr/toolkitscorp .


Audit Committee Effectiveness Center
The Institute’s comprehensive online source of guidance and tools helps members and their clients implement audit committee best practices ( www.aicpa.org/audcommctr ). The site also provides practical advice on recruitment and other aspects of audit committee operations that members can share with clients. Among these is the Audit Committee Matching System (ACMS), which lists qualified, credentialed candidates to serve on boards of directors and audit committees. Members can add their names to the list or promote the system to clients seeking qualified board members. ( Note: The ACMS ( www.aicpa.org/info/committees/index.asp ) is not just for SEC-registrant companies but also for other entities and individual AICPA members.)

Auditing literature for nonissuers
AICPA authoritative literature and interpretations related to the audit reports of nonissuers are available free of charge at www.aicpa.org/members/div/auditstd/authoritative_aicpa_audit_and_attest_standards.htm .

CPE self-study courses
AICPA’s Guide to Reporting and Disclosure Problems for Small Businesses (# 734334JA).
Analytical Procedures for Small Business Engagements (# 730551JA).
Small Business Audits: Balancing Risk, Effectiveness and Efficiency in Today’s World (# 732431JA).
AICPA’s Guide to Financing the Growing Small Business: Sources, Strategies and Disclosures (# 730483JA).
Profit-Building Techniques for Small Businesses (# 732411JA).
Innovative Tax Planning for Small Businesses: Corporations, Partnerships & LLCs (# 745518JA).

JofA articles
Second-CPA-Firm Update, JofA , Sep.05, page 61.
Small Firms: Think Big! JofA , Jun.04, page 22.

For PCPS members only
The PCPS Web site ( www.aicpa.org/pcps ) offers information on joining PCPS, a membership section of 6,000 local and regional firms whose interests the AICPA represents to the profession, regulators and standard setters. PCPS provides practical guidance and quick access to critical information on issues affecting members’ quality, professionalism and profitability.

The TIC Alert ( http://pcps.aicpa.org/Resources/Technical+Issues+Committee+and+Communications/ ), a publication for PCPS members, keeps readers informed about new and developing standards and their potential impact on small business clients.

“Not-for-Profit Board Member Orientation,” a PowerPoint presentation for use with clients and prospects, educates board members on what their duties are, how to be more effective, the governance roles and responsibilities of board members and how they can manage and measure success ( http://pcps.aicpa.org/Resources/Not-for-Profit/Not-for-Profit+Board+Member+Orientation.htm) .

The CPA’s Guide to Retirement Plans for Small Businesses (# 017237JA).
The CPA’s Guide to Small Business Financing (# 091013JA).
How to Prevent, Deter and Detect Fraud in Your Business (# 018200JA).
Not-for-Profit Organizations—AICPA Audit and Accounting Guide (# 012645JA).

For more information or to order, go to www.cpa2biz.com or call the Institute at 888-777-7077.

As business practices evolve, small companies must keep pace with larger organizations. To that end, the AICPA Private Company Enhanced Business Reporting (EBR) Task Force has developed a series of sample reports illustrating what EBR for privately held companies would look like. EBR attempts to shift the focus of financial reports from historical information to a model that incorporates both financial and nonfinancial data, including leading economic indicators. The private company task force wants to ensure EBR guidelines are workable for small businesses.

The task force has designed an online survey to gather the opinions of preparers and users of business reports on the relevance, usefulness and effectiveness of the sample reports. Once results are in, it will conduct focus groups, modify the sample reports based on the feedback and develop a private-company EBR framework based on the existing large company model. Sample reports for private and public companies and the survey can be found at www.ebr360.org/ContentPage.aspx?ContentPageId=8 .

Wherever issues arise that will affect small businesses—in Washington or the state houses or among standard setters or practitioners—the Institute keeps an eye on developments and works to form a response in the interest of the public and the profession. The AICPA also designs resources to help practitioners better serve these clients. These initiatives and products enable you to offer the highest-quality services to your small business clients.


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