The AICPA issued its Financial Reporting Framework for Small- and Medium-Sized Entities during 2013. The FRF for SMEs accounting framework is designed for America’s small business community. It delivers financial statements that provide useful, relevant information in a simplified, consistent, cost-effect way. The FRF for SMEs framework may be used when GAAP financial statements are not required.
The following are some of the key questions about the framework addressed directly by the AICPA:
What is the FRF for SMEs accounting framework?
In contrast to other common accounting frameworks such as GAAP or IFRS, the FRF for SMEs framework is a new option for preparing streamlined, relevant financial statements for privately held owner-manager businesses that are not required to use GAAP. The framework, which was released in June of 2013, draws upon a blend of traditional methods of accounting with some accrual income tax methods.
What is a small- and medium-sized entity (SME)?
Small- and medium-sized entities help form the backbone of the U.S. economy. Estimates put the number of SMEs in the United States at approximately 20 million. They are active in every industry group and involved in providing goods and services in a wide-ranging set of activities. There is no standard definition of SME in the United States. The task force and AICPA staff that developed the framework deliberately did not develop quantified size criteria after determining it was not feasible and not an effective way of describing the kinds of entities for which the framework is intended
Why would small- and medium-sized entities use the FRF for SMEs framework?
The purpose of the FRF for SMEs was to provide efficient, meaningful financial statements without needless complexity or cost for those SMEs that are not required to issue GAAP-based reports. The framework is cost-beneficial for owners-managers and others who need financial statements that are prepared in a consistent and reliable manner in accordance with a framework that has undergone public comment and professional scrutiny. The accounting principles derived from the framework are intended to be the most appropriate for the preparation of small business financial statements based on the needs of statement users and cost-benefit considerations. Accounting principles within the FRF for SMEs are responsive to the well-documented issues and concerns stakeholders currently encounter when preparing financial statements for small private businesses.
What types of entities is the FRF for SMEs accounting framework intended for?
The FRF for SMEs framework has been developed for smaller- to medium-sized for-profit private entities that need reliable financial statements when GAAP financial statements are not required. The FRF for SMEs framework may be used by entities in most industry groups and by unincorporated and incorporated entities. The preface to the FRF for SMEs framework contains a list of certain characteristics of typical entities that may utilize the framework.
This new framework promises to be a benefit to small businesses with less reporting burdens by reducing those costs of reporting. If you think that your business might benefit from using this new accounting option and you would like to speak with a financial professional, please don’t hesitate to contact our office at 417-881-0145. Click here to view the AICPA’s official 206 page PDF for the FRF for SMEs.
written by Aaron Spencer, CPA, Supervisor