Financial Reporting of Small Business Entities in Canada*

Michael Maingot and Daniel Zeghal

Journal of Small Business Management, 2006, vol. 44, issue 4, 513-530

Abstract: Financial reporting for small business entities (SBEs) has been the subject of much debate and concern by the accounting bodies (institutes) in Canada, the United States, the United Kingdom, Ireland, Australia, New Zealand, and other countries. The main issue for the standard setters is whether they should have one set of standards for all companies or two sets of standards (one for big companies and one for SBEs). The main objective of our study is to examine whether SBEs in Canada should have their own new set of Generally Accepted Accounting Principles (GAAP) or should they continue to use big GAAP used by public companies. To address this issue in the Canadian environment, we sent out a questionnaire to a sample of managers and owners of small businesses, preparers, auditors, and users of small business accounts. These stakeholders were asked to identify the purposes of SBE financial statements, their levels of satisfaction or dissatisfaction with the present accounting standards for SBEs, the burdens imposed on the preparers of the financial statements, and the weaknesses of the present standards. Furthermore, they were asked to give the expected advantages of adopting new standards, after having ranked four models of financial reporting of SBEs. The results are quite interesting. Stakeholders indicated that financial statements of SBEs are prepared mainly for taxation purposes and borrowing. They are not satisfied with the present standards because they are costly to comply with and very complex. The burden of producing SBE financial statements can be reduced by simplifying the present standards. The new standards would mean a shorter and simpler form of financial statements. It is hoped that the results of this study will provide the standard setters in Canada and other countries with an indication of the future direction for SBE reporting and accounting.

Date: 2006
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DOI: 10.1111/j.1540-627X.2006.00191.x

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