AICPA Unveils New Non-GAAP Framework for Financial Reporting

By Jason Bramwell
The American Institute of CPAs (AICPA) introduced a new accounting framework on June 10 that is expected to help small businesses with their financial reporting.
The Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) provides a new accounting option for preparing streamlined, relevant financial statements for privately held, owner-managed businesses that are not required to use US Generally Accepted Accounting Principles (GAAP).
The AICPA states that the framework complements the recent efforts made by the Financial Accounting Foundation (FAF) Private Company Council (PCC) to modify US GAAP for private companies.
AICPA President and CEO Barry Melancon, CPA, CGMA, emphasized the FRF for SMEs is not US GAAP and it is not intended to become US GAAP. He stated it is another comprehensive basis of accounting with a framework around it for enhanced financial reporting.
"Where GAAP is required, the PCC is working to expand GAAP financial reporting options for private business," Melancon said in a written statement. "Some private businesses, typically smaller or those with less complex business models, will see the AICPA's framework as an effective alternative to other existing financial reporting options. Larger, more sophisticated private businesses may, in the future, choose to use GAAP for private companies, and still others with unique user needs, regulation, or intentions to go public might use GAAP for public companies."
The PCC and the Financial Accounting Standards Board (FASB) have developed a private company decision-making framework that is intended to act as a guide for both organizations in determining whether and in what circumstances to provide alternative recognition, measurement, disclosure, display effective date, or transition guidance for private companies reporting under US GAAP. The public comment period on the proposed FASB and PCC decision-making framework ends June 21.
"A central responsibility of the FASB is to ensure that the public understands that there are significant differences between GAAP and non-GAAP financial reporting," Robert Stewart, FAF vice president of communications, said in a written statement. "We appreciate that the AICPA has made it clear that its new framework is not  and is not intended to be  GAAP. The AICPA also has made it clear that businesses and accounting firms should carefully consider which financial reporting methodology  GAAP or non-GAAP  is most appropriate, given the business' unique circumstances."
Key Points of AICPA Framework
The purpose of the FRF for SMEs is to help small businesses prepare financial statements that clearly and concisely report what a business owns, what it owes, and its cash flow. The AICPA believes that lenders, insurers, and other users of financial statements will find the framework helps them clearly understand key measures of a business and its creditworthiness. Such key measures include:
  • Business profitability
  • Cash available
  • Assets to cover expenses
  • Concise disclosures
The FRF for SMEs draws on a blend of traditional accounting principals and accrual income tax methods of accounting, according to the AICPA. The framework includes the following key approaches:
  • Uses historical cost  steering away from complicated fair value measurements.
  • Offers a degree of optionality  businesses can tailor the presentation of statements to their users.
  • Includes targeted disclosure requirements.
  • Reduces book-to-tax differences.
  • Produces reliable financial statements that can be compiled, reviewed, or audited.
"I think this new accounting framework is exactly what business owners, CPAs, and community bankers have been looking for as a viable and reliable alternative to the options already available," Richard Caturano, chairman of the AICPA Board of Directors, said in a written statement. "The FRF for SMEs expands the accounting options for CPAs and private companies while providing comprehensive, consistent, and cost-beneficial financial statements."
The FRF for SMEs was developed by a working group of experts from the CPA profession with a solid understanding of what users of private company financial statements need, according to the AICPA. The framework has also undergone public comment and professional scrutiny, and it incorporates significant feedback from CPAs, bankers, and other relevant stakeholders.
Related article:

You may like these other stories...

The Public Company Accounting Oversight Board (PCAOB) is interested in what you have to say about auditing accounting estimates and fair value measurements.The US audit regulator on Tuesday issued for public comment a staff...
Hertz withdraws full-year forecast, cites accounting review, challengesRental car company Hertz Global Holdings Inc. said on Tuesday it is withdrawing its full-year financial forecast and expects 2014 results to be “...
Treasury prepares options to address tax inversionsDamian Paletta of the Wall Street Journal reported on Monday that US Treasury Department officials are assembling a list of administrative options for Treasury Secretary...

Already a member? log in here.

Upcoming CPE Webinars

Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.