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11
Connecticut CPA
g
September/October 2014
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them relevant and understandable in
decision-making.Cash/modifiedcash-
and tax-basis statements are usually
cost effective and can readily be used
by entities in industries conducive to
these bases. The decision tool points
out that the tax basis may be relevant
for companies in the real estate indus-
try since tax aspects of transactions
are a major consideration for investors
in such ventures.
Cash-basis statements would be use-
ful when users are highly interested in
cash flow and the entity's operations
are simple without much in the way of
long-termdebtorfixedassets,which
would make accrual statements more
relevant. The decision tool points out
that this basis would be most appro-
priate for service businesses, medical,
retail, real estate, and some not-for-
profitorganizations.
Considerations Related to the FRF
for SMEs Framework The FRF for
SMEs framework provides for com-
prehensive reporting including a state-
mentofcashflowandfootnotedisclo-
sures. Characteristics of entities which
would use this framework are:
Theentityisforprofit.
Management has no intention
of going public.
Nosignificantforeignoperations
exist.
The entity is closely held and
owner managed.
The entity does not engage in overly
complicated transactions.
Financial statement users have
access to the entity's management.
Financial statement users are pri-
marilyinterestedincashflow,
liquidity,financialpositions,and
debt coverage ratios.
Also, in lending situations, the
lender does not base lending
decisions solely on the entity's
financialstatements,buttakes
other sources of collateral into
consideration.
The third part of the decision tool rec-
ommends that the entity weigh all
The decision to use a framework other than GAAP is not
an easy one. There are many things to consider and we
need to know our clients' intentions well in order to advise
them properly.
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