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www.ctcpas.org
I
n June 2013, the American Insti-
tute of CPAs (AICPA) released the
Financial Reporting Framework
for Small- and Medium-Sized Enti-
ties (FRF for SMEs) to help privately
held companies determine which ac-
counting framework best meets their
financial reporting needs. Financial
reporting frameworks include U.S.
GAAP (including International Finan-
cial Reporting Standards [IFRS] and
IFRS for SMEs ), FRF for SMEs, Cash/
ModifiedCashBasis,andTaxBasis.In
order to assist entities in the process
of selecting an appropriate reporting
framework, the AICPA released its De-
cision Tool for Adopting an Accounting
Framework late last August.
The National Association of State
Boards of Accountancy (NASBA) pro-
vided input into the development of the
decision tool. NASBA was opposed to
the FRF for SMEs because it believed
it went against efforts by the Financial
Accounting Standards Board (FASB)
and the Private Company Council
(PCC) to modify U.S. GAAP in order to
make it more adaptable to small pri-
vate companies.
At this point, NASBA and the AICPA
support FRF for SMEs as a non-au-
thoritative framework for small entities,
as long as that framework is not con-
fused with GAAP and that entities ap-
ply GAAP or non-GAAP "in a suitable
and transparent manner."
FRF for SMEs
The FRF for SMEs framework provides
one of several alternatives to GAAP
for those companies that are not re-
quired to issue GAAP-basis financial
statements. The framework uses many
principles included in GAAP and also
draws on some accrual income tax
methods without the complexity of
GAAP and its required disclosures.
Earlier this year, the AICPA published
"Comparisons of the FRF for SMEs
Reporting Framework to Other Bases
of Accounting," which analyzes key
differences between the new frame-
work and other bases of accounting.
Not all the differences are included
in the document, but those that most
stakeholders would be interested in
are listed.
Some of the more notable differences
between FRF for SMEs and U.S. GAAP
are as follows:
Fair Value FRF for SMEs uses the
term "market value." Market value
is used only in a few areas such as
business combinations, debt and eq-
uity securities held for sale, and some
nonmonetary transactions. In contrast,
GAAP has its fair value measurement
hierarchy and required disclosures for
fair value measurements.
Comprehensive Income No indus-
try-specific guidance on comprehen-
sive income.
By Michael J. Rolleri, MBA, CPA and Robert E. Wnek, J.D., LL.M., CPA
Financial Reporting Framework for SMEs and
the AICPA Decision Tool for Adopting an
Accounting Framework