The AICPA has issued a new Financial Reporting Framework (“FFR”) for Small and Medium Sized Entities (“SMEs). These smaller enterprises are often not required to prepare financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). Yet all financial statements are presented in accordance with some financial reporting framework, however defined. This new FFR provides an option for private companies that combines traditional methods of accounting with some accrual income tax methods to provide efficient, meaningful financial statements without unnecessary complexity or cost. 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”
Such reporting is intended to reflect what a business owns, owes and cash flows. Interested third parties, such as lenders, insurers and other financial statement users should be able to clearly ascertain key measures of a business and its creditworthiness, including:
- Business profitability
- Cash available
- Assets to cover expenses
- Concise disclosures
This effort by the AICPA offers a standard of reporting solution for many businesses that should meet their needs.
