Has financial reporting become too cumbersome for your private company? If so, never fear, the AICPA has come up with a possible solution. For years, there has been discussion in the accounting world on whether there should be “Big GAAP and Little GAAP" (Generally Accepted Accounting Principles) to do away with complex financial reporting rules that may not make sense for some private companies. Both the FASB and the AICPA have identified this issue and have started two different groups to come up with a solution.
FASB created a Private Company Council to attempt to create a new set of GAAP used for private companies, but a new reporting framework has not yet been issued from the group. However, the AICPA created a new financial reporting model, and its purpose is to help small to midsized private companies comply with their financial reporting needs. Out of their project, the Financial Reporting Framework for Small to Midsize Entities was born (“FRF for SME”).
There are certain criteria that the company has to meet in order to utilize the new framework:
One item to remember is that using this reporting framework does not produce a GAAP financial report but rather an OCBOA report (“Other Comprehensive Basis of Accounting”). Depending on who the users of the financial statement are (lenders, valuation specialists, etc), this may not be a fit for some Companies.
The three main areas in which “FRF for SME” differs from GAAP are as follows:
Small businesses should consider this option for their reporting needs in order to simplify their outside financial reporting, and Meaden & Moore, Ltd. can help you implement the reporting change. Initially, you’ll want to discuss changing to this format with the user of the financial statements (typically the bank) to make sure your financial statement will still comply with loan documents, valuation models, etc. If you have any questions or are interested in exploring this option, please call our offices.