FRF for SMEs Framework Gaining Traction in Marketplace
AICPA Enhances Tools to Assist CPAs with Implementation
Private company financial reporting has evolved more in the past year or so than during the previous four decades. In June the AICPA issued an accounting framework for smaller, owner-managed businesses that do not need financial statements based on U.S. generally accepted accounting principles, and the Financial Accounting Foundation’s Private Company Council has proposed alternatives within GAAP for private entities. Both the framework and the PCC have the same goal of improving financial reporting for private companies and both are critically important, as private companies represent the vast majority of the businesses comprising America’s non-governmental economy.
Many owner-managed companies are small or micro in size. They often are called Main Street businesses, mom-and-pop shops or suburbia’s business districts. The AICPA’s Financial Reporting Framework for Small- and Medium-Sized Entities was designed to serve this segment. The FRF for SMEs framework presents the small business community with an opportunity for robust and relevant financial statements that are simplified and cost efficient when U.S. GAAP is not required as a basis of accounting.
The FRF for SMEs framework essentially is a new reporting option in the non-GAAP space. It’s not revolutionary. A distinguishing characteristic is that the FRF for SMEs framework offers comprehensive, documented guidance to follow. Financial statement users appreciate the consistency and reliability that stems from such guidance, and so we are confident they will adapt to the new framework as they learn about it. In fact, we already are seeing substantial interest from financial statement users. A targeted advertising campaign in July resulted in more than 9.5 million estimated viewers and more than 7,000 visits to the FRF for SMEs Toolkit for Financial Statement Users. We also have heard from many accounting firms that they are discussing it with financial statement stakeholders and clients.
CPAs reporting on financial statements based on the framework will follow the same standards as the ones used when providing services on any other type of non-GAAP financial statements. The profession’s Code of Conduct and state board of accountancy rules are always in play, and the practitioner’s work could be selected for peer review.
Because the CPA profession serves as trusted advisers to millions of small businesses, we consider the FRF for SMEs initiative an extension of our advocacy efforts. As a result, the framework and extensive toolkits are free to the public and the profession. A Toolkit for CPAs provides educational resources, implementation tools and marketing support – including resources for explaining the framework to appropriate clients and financial statement users.
You may find a couple of additions particularly useful as you think about clients who may benefit from using the framework or your employer if you are in business and industry. With input from the National Association of State Boards of Accountancy, the AICPA is finalizing a decision-making tool to help businesses determine whether the FRF for SMEs is an appropriate reporting option for them (to be available next week). Furthermore, another set of financial statements has been added to the illustrative financial statements resource in the toolkit; both sets clarify how to state the basis of accounting and disclose the differences from U.S. GAAP.
The FRF for SMEs framework is the latest AICPA effort to help the profession support America’s small business community. I encourage you to explore this exciting opportunity in private company financial reporting.
Barry Melancon, CPA, CGMA, President and CEO, American Institute of CPAs.