Robert Durak
AICPA developing new financial reporting framework for small and medium-size entities

Survey seeks input from CPAs.

August 20, 2012
By Robert Durak, CPA

With the Financial Accounting Foundation’s (FAF) decision in May to create a Private Company Council, it appears U.S. GAAP is on the road to being modified for private companies. The AICPA, most state CPA societies, many private companies in the United States, and thousands of other stakeholders now eagerly await changes in accounting standards where appropriate.

But what about the millions of private companies that do not need financial statements prepared in accordance with GAAP? How can they get less complexity and more relevance, as well as positive costs/benefits, for their financial statements?

In many cases GAAP is unnecessary and therefore not the best solution for a small or medium-size enterprise. The AICPA is working to improve financial reporting for these owner-managed, for-profit companies. A new, self-contained financial reporting framework for small and medium-size entities (FRF for SMEs) is under development for release next year. An exposure draft is expected this fall.

The new framework promises to be a straightforward, concise way to accurately convey a private company’s performance, what it owns and owes, and its cash flow. It will be a blend of accrual income tax methods and traditional accounting methods and offer an additional basis for a non-GAAP accounting system (the others are cash, tax, regulatory, and contractual). It will use only relevant financial reporting topics (no comprehensive income, for example) and simplified principles (fewer disclosure requirements and no complicated derivative accounting or stock compensation rules). It is intended to be a less complex and less costly option for businesses in any industry that do not need to use U.S. GAAP, but want their financial statements prepared in a consistent, reliable manner and in accordance with a framework that has undergone public comment and professional scrutiny. The framework is being developed by a working group of AICPA members and staff with years of experience serving small to medium-size entities.

FRF for SMEs will be available for use as soon as it is issued in the first half of 2013. FAF has publicly supported the AICPA project, calling it “important and complementary.”

Watch for an exposure draft of the framework this fall. For more information, visit the AICPA’s Financial Reporting Center at aicpa.org/FRC.

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Robert Durak, CPA, is a senior technical adviser for accounting standards for the AICPA in New York City.

AICPA seeks input on development of new financial reporting framework

The AICPA wants to gain insights from CPAs as it develops the financial reporting framework for small and medium-size entities. The Institute is exploring CPAs’ awareness and use of non-GAAP accounting systems, the types of guidance CPAs would want to help them implement the new framework, and what resources would help them educate private company financial statement users about its benefits.

A brief online survey is available at aicpa.org/OCBOA-survey. The survey will be open through 2012. Responses are anonymous.