Small and medium sized entities received some interesting reporting requirement information issued by the AICPA yesterday (June 10, 2013). The new reporting is available for use when GAAP based financial statements are not required. The Financial Reporting Framework for Small- and Medium-Sized Entities (FRE for SMEs) is available to be used under the Other Comprehensive Basis of Accounting (OCBOA) reporting. This provides another option for reporting non-GAAP financial statements in addition to tax basis, cash (modified cash) basis, contractual and regulatory reporting methods.
While there is no quantitative definition for a small or medium sized entity, there are certain characteristics:
- Owner-managed/for profit entity
- Incorporated or unincorporated
- Industry group does not have highly-specialized accounting guidance (excludes financial institutions and governmental entities among others)
- Has no intent to go public
- Does not engage in overly complicated transactions
- Does not have significant foreign operations
- Financial statement users may have greater interest in cash flows, liquidity, statement of financial position strength and interest coverage
This framework is designed for the benefit of financial statement users (lenders, sureties, etc.) who know the SME’s industry, owners and/or management, and are more interested in the cash flow of the business. This framework is also available for business owners who don’t have GAAP requirements placed on them by the aforementioned financial statement users. The AICPA has no authority to require the use of the FRF for SME’s accounting framework. It is totally optional based on the requirements of the SME’s financial statement users.
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