On November 1, 2012, the American Institute of Certified Public Accountants (AICPA) released for public comment the exposure draft Proposed Financial Reporting Framework for Small- and Medium-Sized Entities. The proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) is designed for privately owned, for-profit entities that are not required to produce financial statements in accordance with U.S. GAAP.
The proposed FRF for SMEs is a special purpose framework (formerly referred to as other comprehensive basis of accounting) intended for use by privately-held small- to medium-sized entities in preparing their financial statements. The proposed FRF for SMEs follows the general principal that historical cost is the most useful measurement basis for the users of SME financial statements and the most cost-beneficial approach for management.
Some of the key features of the proposed framework include the following:
Historical cost is the primary measurement basis
Closely aligned with the accrual basis of accounting
Disclosures are reduced, while still providing users with the relevant information
Familiar and traditional accounting methods are used
Adjustments needed to reconcile tax return income with book income are reduced
Principal-based framework, usable across industries by incorporated and unincorporated entities
Only financial statement matters that are typically encountered by SMEs are addressed in the framework
The FRF for SMEs is not proposed as an authoritative document, and the AICPA would have no authority to require the use of the FRF for SMEs. Use of the FRF for SMEs would be a choice made by management of the entity after considering the users of the financial statements.
Currently, the AICPA is asking for comments on the proposed framework. The comment period ends January 30, 2013. The AICPA has a resource page that provides additional information on the proposed FRF for SMEs.
The AICPA anticipates issuing a final framework in the first half of 2013.
Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.