By Allison M. Henry, CPA, CGMA, PICPA Vice President - Professional & Technical Standards
On June 10, 2013, both the FASB and the AICPA made significant strides toward addressing the financial reporting complexity for small businesses.
The AICPA, for its part, released a completely new special purpose framework designed for small businesses. Called the Financial Reporting Framework for Small- and Medium-Sized Entities
, (FRF for SMEs), this new framework offers a simplified financial reporting option for those entities that are not required to use U.S. GAAP. Is this new framework right for your business or clients? The devil, as always, is in the details. The new framework is significantly scaled back from U.S. GAAP (approximately 200 pages versus the 10,000 pages or so for U.S. GAAP,) uses more traditional accrual income tax accounting concepts, reduces the need for fair value measurements, and permits the amortization of goodwill. It represents a clear option for some entities. However, will the users of the data (such as lenders, etc.) and other regulatory bodies accept financial statements prepared using this framework? This remains to be seen.
On the U.S. GAAP front, the FASB voted to endorse
three significant proposals from the Financial Accounting Foundation’s Private Company Council
(PCC). The PCC works within the FASB umbrella to propose financial reporting options for nonpublic entities. The proposed alternatives addressed accounting for “plain vanilla” interest rate swaps; recognizing and measuring various intangible assets (other than goodwill) acquired in business combinations; and subsequently measuring goodwill. The proposed changes to U.S. GAAP will go through the normal due process, with comments deliberated by the PCC. The FASB will then reconsider the revised PCC proposal for potential endorsement. If the final endorsement is received, the proposed revisions will be issued as Accounting Standards Updates and incorporated into the U.S. Accounting Standards Codification
. Therefore, regardless as to your level of participation in the debate on financial reporting for private companies, you could potentially benefit through new options for nonpublic entities.
Who is winning the Big GAAP/Little GAAP race? Hopefully, private companies will be the winners.