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NEW YORK (June 10, 2013) – The American Institute of CPAs (AICPA) today introduced the Financial Reporting Framework for Small-and Medium-Sized Entities to help the small business community with its financial reporting needs. The FRF for SMEsTM accounting framework is a new accounting option for preparing streamlined, relevant financial statements for privately held owner-managed businesses that are not required to use US Generally Accepted Accounting Principles (GAAP).
The FRF for SMEsTM framework offers small business owners an alternative to the non-GAAP options that are currently available. It provides efficient, meaningful results without needless complexity or cost. To be clear, the FRF for SMEs™ is not GAAP, but is complementary to efforts by the Financial Accounting Foundation (FAF)’s Private Company Council (PCC) to modify GAAP for private companies. The AICPA fully supports the work of the PCC, FAF and the Financial Accounting Standards Board to address the private company environment.
"The creation of the Private Company Council by the Financial Accounting Foundation and today's issuance of the FRF for SMEs ™ gives private business owners two more viable options,” said Barry C. Melancon, CPA, CGMA, president and CEO of the AICPA. “The FRF for SMEs ™ has been developed to provide consistent and simpler financial statements for small and medium sized entities where GAAP is not required. Where GAAP is required, the Private Company Council is working to expand GAAP financial reporting options for private business. Some private businesses, typically smaller or those with less complex business models, will see the AICPA’s framework as an effective alternative to other existing financial reporting options. Larger, more sophisticated private businesses may, in the future, choose to use GAAP for private companies, and still others with unique user needs, regulation or intentions to go public might use GAAP for public companies.”
Relevant, Reliable, Simplified Reporting:
Small businesses will use the FRF for SMEsTM to prepare financial statements that clearly and concisely report what a business owns, what it owes and its cash flow. Lenders, insurers and other financial statement users will find this new accounting framework helps them clearly understand key measures of a business and its creditworthiness, including:
- Business profitability
- Cash available
- Assets to cover expenses
- Concise disclosures
A New, Standardized Approach:
The framework’s streamlined common-sense requirements are based on traditional and proven accounting methods to ensure consistent application. Specifically, the FRF for SMEs™:
- Uses historical cost – steering away from complicated fair value measurements
- Offers a degree of optionality – businesses can tailor the presentation of statements to their users
- Includes targeted disclosure requirements
- Reduces book-to-tax differences
- Produces reliable financial statements that can be compiled, reviewed or audited
“I think this new accounting framework is exactly what business owners, CPAs and community bankers have been looking for as a viable and reliable alternative to the options already available,” said Richard J. Caturano, chairman of the AICPA Board of Directors. “The FRF for SMEs™ expands the accounting options for CPAs and private companies, while providing comprehensive, consistent and cost-beneficial financial statements.”
The FRF for SMEs™ issued by the AICPA was developed by a working group of experts from the CPA profession with a solid understanding of what users of private company financial statements need. This new accounting framework has also undergone public comment and professional scrutiny, and incorporates significant feedback from CPAs, bankers and other relevant stakeholders.
Melancon said, “The FRF for SMEsTM is not GAAP and it is not intended to become GAAP. It is another comprehensive basis of accounting with a framework around it for enhanced financial reporting.”
To follow FRF for SMEs™ on Twitter, hashtag: #MainStFinancials.