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9
Connecticut CPA
g
September/October 2014
Impairments Long-lived assets are
capitalized and depreciated and are
not written off if impaired. GAAP, on the
otherhand,hasspecificrequirements
and tests for impaired assets that must
be written off if there is a permanent
decline in value.
Income Taxes Entity may account
for income taxes with either the tax-
es payable or deferred income taxes
methods. There is no requirement to
evaluate or accrue uncertain tax posi-
tions as required by GAAP.
Goodwill Amortized over 15 years
with no impairment testing. Goodwill
is no longer amortized under GAAP
standards and impairment testing is
required at least annually.
Intangible Assets All intangible
assets are assumed to have deter-
minable lives and are amortized over
those lives. GAAP does not assume
that all intangibles have determinable
lives. Under GAAP, indeterminable life
intangibles are not amortized and test-
ed for impairment annually.
Financial statements prepared using
FRF for SMEs are essentially another
form of Other Comprehensive Basis of
Accounting (OCBOA) financial state-
ments. Time will tell the extent to which
it will be used and how well received
itwillbebyfinancialstatementusers.
Some of NASBA's criticisms include
that since it is nonauthoritative it will be
difficulttoregulate,thatsmall-tome-
dium-sized entities remain undefined,
and that any entity can adopt FRF for
SMEs. Further, disclosures regarding
how this framework differs from GAAP
are not required.
The AICPA's responses to these criti-
cisms are that CPAs are bound by the
same professional standards of quality
performancewithintheconfinesofany
framework, GAAP or OCBOA. Market
forces and the requirements of users
will determine when OCBOA state-
ments are used and by whom. Also,
FRF-for-SME-based financial state-
ments are not intended to be GAAP
statements. The terminology used in
financial statements prepared using
FRF for SMEs and other OCBOA state-
ments is different. Balance sheet and
income statement titles are not used
and disclosures indicate that the basis
of accounting used is not GAAP.
Another question is how we can have
theoretical justification for treating
certain items one way for GAAP and
in a completely different way in FRF-
for-SME-based statements. For ex-
ample, the decision of whether or not
to amortize goodwill should not be
based on the size of the entity. It either
makes sense to amortize it or it does
not. Theoretical principles should
be the same for all entities. Basic
concepts and assumptions should be
applicable to all entities regardless
of size.
AICPA Decision Tool for
Adopting an Accounting
Framework
The decision tool was developed in
order to help entities choose an ap-
propriatefinancialreportingframework
in light of their needs and the needs
oftheirfinancialstatementusers.The
tool has three parts.
The first part is a simple flowchart
which helps the entity decide whether
paid advertisement
At this point, NASBA
and the AICPA support
FRF for SMEs as a non-
authoritative framework for
small entities as long as that
framework is not confused
with GAAP and that entities
apply GAAP or non-GAAP
"in a suitable and transpar-
ent manner."
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