Another Way to Deliver True Business Value 

    by Derrel Curry, CPA 

    True Business ValueWe’ve always been an early adopter of changes that are made in the profession and try to stay ahead of change so we can help our clients and their stakeholders.  We are so excited about the Financial Reporting Framework for Small and Medium-sized Entities (FRF for SMEs) because it finally gives practitioners another option to offer clients – and their lenders and other stakeholders – when US GAAP is not required. 

    Early on, even prior to the comment phase close of the FRF for SMEs, I was getting up to speed on the new framework and sharing what I was learning with our staff.  I provided an in-depth analysis of FRF for SMEs to our owners and managers by using the Financial Reporting Framework for Small- and Medium-Sized Entities document.  The main benefits for our firm include:

    1. Having an option to offer a framework that is best for each client
    2. More flexibility and choices, which means less “non-relevant” work and reporting that clients or their lenders or stakeholders may not need or use
    3. More consistency to the framework, so clients don’t have to understand and apply something new every year unlike US GAAP which often has multiple changes annually

    After sharing the benefits of the framework with our owners and managers, we started educating lenders and other client stakeholders.  The lenders and other stakeholders were so appreciative of the education and heads up about the new special purpose framework that they visibly shifted in these initial meetings from simply being polite and listening to a presentation because free lunch was being offered to becoming engaged and asking questions about how the framework will impact them and their clients.  Since lenders and stakeholders are key users of the financial statements, they saw the magnitude of complexity that clients had to go through to be in compliance with US GAAP where some of the requirements were not truly applicable to SMEs.  Two examples include:

    • US GAAP’s requirement of consolidation doesn’t always make sense for  smaller companies with multiple entities because sometimes a lender or licensing board only wants to see a parent entity financial statements without the inclusion of other entities.
    • Small to mid-sized companies often have money market accounts but not the securities or other investments held by larger companies.  However, related to fair value, US GAAP requires that the same standards apply for the SME with only money market accounts.  This requires these small entities to include more than a page of verbiage that essentially states “fair value equals amortized cost,” which doesn’t provide significant value to the company or stakeholder. 

    The FRF for SMEs now gives small and medium-sized clients the flexibility to accommodate these types of issues.

    Clients, their lenders and stakeholders and our firm’s staff appreciate the ability to work together to choose the framework that best suits the entity’s needs because all clients have stakeholders to which they are accountable.  Because of this fact, it’s important for clients to get their lenders’ buy in to the new framework and understand what’s important to them and current and future stakeholders before determining their financial reporting options.

    The one concern we hear from lenders is that they are afraid to lose comparability of data over time if a client moves to this new framework.  However, we believe lenders are currently lacking comparability of financial statements prepared in accordance to US GAAP because US GAAP has continued to change over time.  It is worth discussing with clients who want to make the move to the FRF for SMEs that part of the initial investment may include restating and converting their prior year financial statements using the FRF for SMEs to provide their lenders and stakeholders a basis for comparison for at least one prior year.  If the change to the FRF for SMEs is viewed as a long-term business decision that provides the owner(s) more flexibility and consistency in their financial reporting framework going forward, the investment is likely to be worthwhile.

    Since we were an early adopter of the FRF for SMEs, I created many presentations and educational materials from scratch.  Today, we can utilize the tools and resources available in the Financial Reporting Framework for SMEs Toolkit.  There are tools for CPAs and firms, financial statement users and small businesses, so be sure to check them out and avoid reinventing the wheel!

    It may take some time to increase the recognition and understanding of how and when to use the FRF for SMEs when US GAAP is not a good fit.  But as a CPA, it is great to have this financial reporting framework that expands the options and value we can provide our clients. 

    Derrel Curry, CPA is a member at Barfield, Murphy, Shank & Smith, LLC (BMSS), an eleven-member, one hundred person large firm in Birmingham, AL.  For more information about BMSS, visit

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