The AICPA just released a new financial reporting framework for small businesses. It aims to save small business owners both time and money. According to aicpa.org, the FRF for SMEs (Financial Reporting Framework for Small to Medium Sized Entities) is “a new accounting option for preparing streamlined, relevant financial statements for privately held owner-managed businesses that are not required to use GAAP. The FRF for SMEs framework draws upon a blend of traditional methods of accounting with some accrual income tax methods.”
Examples of how the new framework reduces the complexity and cost of financial reporting for small businesses include the following:
So what is the definition of a SME? A standard definition doesn’t exist in the United States. According to the AICPA, “the term is intuitive, widely recognized, and effectively descriptive of the scope of entities for which the FRF for SMEs accounting framework is intended.”
The task force and staff deliberately did not develop quantified size criteria for determining what is a small-and medium-sized entity. They decided that developing quantified size tests is not feasible. It is also not an effective way of describing the kinds of entities the framework is intended for. Rather, the AICPA has developed a list of characteristics of SMEs to guide companies in determining whether to adopt the new framework.
Here is the list excerpted from the FRF for SMEs report:
Since the use of the framework is optional, there is no effective date. So, businesses can use the framework immediately.
While the framework should simplify the financial reporting process for small businesses, only time will determine the ripple effect. How will this affect the learning curve for CFOs changing jobs between companies reporting under different frameworks? Furthermore, will lenders accept financial statements prepared under the new framework? How will CPA firms deal with the cost of educating staff on the auditing standards for the new framework?
Here’s a link to the full FRF for SMEs report.
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