12.6. Going Public or Keeping Things Private

Suppose you had the inclination (and the time!) to compare 100 annual financial reports of publicly owned corporations with 100 annual reports of privately owned businesses. You'd see many differences. Public companies are generally much larger (in terms of annual sales and total assets) than private companies, as you would expect. Furthermore, public companies generally are more complex — concerning employee compensation, financing instruments, multinational operations, federal laws that impact big business, legal exposure, and so on.

NOTE

Private and public businesses are bound by the same accounting rules for measuring profit and for valuing assets, liabilities, and owners' equity, and for disclosures in their financial reports. (To be more precise, private companies are exempt from a couple of accounting rules.) But most of the accounting and financial reporting standards that have been issued over the last two or three decades are directed mainly to public companies; by and large private companies do not have these accounting issues. As I mention in Chapter 2, the accounting profession has taken initiatives with the goal of better recognizing the different needs of private companies and the constituents of financial reporting by private companies. Well, this is the party line. In my view, the main purpose is to lighten the accounting and financial reporting burden on private companies, which generally don't have the time or the ...

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