This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

AICPA issues Financial Reporting Framework for SMEs

  • AICPA (American Institute of CPAs) Image

Jun 11, 2013

The AICPA has issued its special-purpose financial reporting framework "Financial Reporting Framework for Small-and Medium-Sized Entities" (the FRF for SMEs). The FRF for SMEs provides another option for SMEs that are not required to prepare financial statements in accordance with U.S. GAAP.

The FRF for SMEs is designed to simplify the process of preparing financial statements by reporting clearly what a business owns, what it owes, and its cash flow. In particular, 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

The FRF for SMEs is not U.S. GAAP and is not intended to become U.S. GAAP.

In a statement on the publication of the framework (link to the FAF's Web site), the Financial Accounting Foundation (FAF) underlines the significant and substantive differences between the two separate efforts to address the accounting concerns of private-company stakeholders. While The FASB, working with the new Private Company Council (PCC), is seeking to identify areas in U.S. GAAP in which appropriate alternatives could reduce costs and complexity for private companies without sacrificing the transparency, comparability and reliability of GAAP financial statements, the AICPA, with the FRF for SMEs, is creating a non-GAAP, special-purpose framework for smaller, owner-managed, "Main Street" businesses, whose lenders or investors do not require the comprehensiveness of GAAP financial statements.

In addition, the National Association of State Boards of Accountancy (NASBA) has issued a press release reaffirming its position that private companies use U.S. GAAP as modified by the FASB when preparing financial reports. The NASBA urges private companies not to use the FRF for SMEs. As stated by the chair of the NASBA, Gaylen Hansen:

At a time when accountability and transparency of those in authority is scrutinized, it is troubling that a non-authoritative proposal to significantly weaken the financial reporting of private companies and public protection is even being suggested.

 The NASBA also points out three main issues concerning the FRF for SMEs:

  1. It represents nonauthoritative guidance, which will be difficult to regulate or enforce.
  2. The scope of "small and medium sized entities" is not defined, which will result in any private company potentially adopting the FRF for SMEs.
  3. It does not require a disclosure of differences with U.S. GAAP when using US GAAP financial statement titles.

The press release and FRF for SMEs are available on the AICPA's Web site.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.