AICPA Proposes Financial Reporting Framework for Small and Medium-Sized Entities

Published on: 05 Nov 2012

Last week, the AICPA issued an exposure draft (ED), Proposed Financial Reporting Framework for Small- and Medium-Sized Entities (the FRF for SMEs). The FRF for SMEs proposes an optional, alternative financial reporting framework for privately held SMEs that are not required to prepare financial statements in accordance with U.S. GAAP. The ED states that “[t]he FRF for SMEs is not proposed as an authoritative document, and the AICPA would have no authority to require the use of the FRF for SMEs for any entity. Use of the FRF for SMEs [would be] a choice made by the management of an entity.”

The ED notes that key features of the FRF for SMEs would include the following:

“[It] is a principles-based framework.”
“Historical cost is the primary measurement basis.”
“Disclosures are reduced, while still providing users with . . . relevant information.”

Comments on the ED are due by January 30, 2013, and a final version of the framework is expected to be released in the first half of 2013. Watch for Deloitte’s upcoming Heads Up on the proposal.

Editor’s Note: In May 2012, the Financial Accounting Foundation, the FASB’s parent organization, established the Private Company Council (PCC), which is charged with (1) determining whether exceptions or modifications to existing U.S. GAAP (i.e., the FASB Accounting Standards Codification) would be warranted for private companies and (2) advising the FASB on private-company accounting matters during the standard-setting process. Unlike the AICPA’s responsibilities outlined in the FRF for SMEs, the PCC’s responsibilities: Do not include establishing an alternative financial reporting framework for private companies that would be separate from U.S. GAAP. May not be limited to accounting guidance for small and medium-sized private companies; the PCC is tasked with addressing U.S. GAAP accounting matters related to entities that meet the definition of nonpublic entity.₁ See Deloitte’s June 5, 2012, Heads Up for more information.

[1] In July 2012, the FASB issued an Invitation to Comment, Private Company Decision-Making Framework — A Framework for Evaluating Financial Accounting and Reporting Guidance for Private Companies. This proposal includes the Board’s tentative decisions to date regarding the definition of a private company (also referred to as a nonpublic entity) and asked stakeholders to provide input on this definition by November 9, 2012. See Deloitte’s August 7, 2012, Heads Up for more information.