Accounting standards for publicly traded companies are more onerous than for privately held companies. However, many private companies choose to meet similar high standards in order to satisfy lenders, shareholders and insurance companies. All companies are required to prepare corporate income tax returns, but the Securities and Exchange Commission requires public companies to comply with Generally Accepted Accounting Principles. The Financial Accounting Standards Board oversees GAAP accounting with substantial input from the American Institute of Certified Public Accountants.
In response to several high-profile instances of corporate fraud, Congress passed Sarbanes-Oxley legislation in 2002 establishing the Public Company Accounting Oversight Board as a mechanism for the SEC to regulate the accounting function for publicly traded companies. The SEC requires that public companies submit audited financial statements quarterly and annually via Form 10-K and Form 10-Q filings.
FASB created the Private Company Council in 2013 to assist private companies in maintaining GAAP compliance. The National Association of State Boards of Accountancy assisted the AICPA in releasing the Financial Reporting Framework for Small and Medium-Sized Entities, which is a framework allowing smaller businesses to determine whether or not GAAP compliance is necessary in their cases. Private companies also may issue compiled or reviewed, rather than audited, financials statements. This lowers accounting costs without too radical a departure from GAAP in most cases.