I have never been a CPA, but I did major in accounting and I was taught Generally Accepted Accounting Principles (GAAP). In taking care of issues in the cannabis business, if you use GAAP, you can expense more items through cost of goods sold (COGS) than you can under any other method of preparing financial statements.
Obviously, I haven’t used GAAP since school, so not wanting to get sanctioned by the Florida State Board of Accountancy, I sent them a simple question.
I asked them, “As an EA can I prepare a financial statement under GAAP?” I’ve been in practice for 24 years, and I remember a time when I could call the statements that I prepared in Florida compilations. Somewhere along the way, CPAs hijacked the term compilation, and EAs were no longer allowed to use it in Florida. The answer I received from the State Board of Accountancy was that, as an EA, I wasn’t allowed to do financial statements, much less a GAAP statement.
Let’s hold up here for a second. First of all, I do tax planning for businesses. The only way to do tax planning, is to put the business’s records into the form of a financial statement. Meaning I have to produce a Balance Sheet and an Income Statement that clearly reflects taxable income. One could argue that a tax return itself for a business is a financial statement. Page one of the business return is the income statement, and Schedule L on Page 4 is the Balance Sheet. A GAAP statement is more or less a statement produced under the accrual method of accounting, with some adjustments.
So I called a CPA colleague of mine that I refer any client to that needs an audited, reviewed or compiled statement, and he told me that the term “financial statement” was what the State Board of Accountancy had a problem with. That’s because in reality the only people who can produce a financial statement in Florida was a CPA. So, we are basically back to splitting terms again.
About Craig W. Smalley, EA
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.