NASBA and AICPA Reconcile Differences on FRF for SMEs
by Terri Eyden on
By Jason Bramwell
The National Association of State Boards of Accountancy (NASBA) and the American Institute of CPAs (AICPA) have put aside their differences regarding the non-US Generally Accepted Accounting Principles (GAAP) financial reporting framework that the AICPA introduced last month and have teamed on a decision-making tool that will help small businesses decide whether the framework is right for them.
According to a joint statement released by both organizations on July 15, the NASBA will provide input to the AICPA on the development of the decision-making tool for businesses interested in using the AICPA's Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs).
"The AICPA and NASBA are committed to engaging in an effort to ensure that the FRF for SMEs, as a nonauthoritative framework, is not confused with GAAP and that entities that utilize GAAP or a non-GAAP solution do so in a suitable and transparent manner," the joint statement says.
Additionally, illustrative financial statements and disclosures will be developed to distinguish FRF for SMEs–based financial statements from US GAAP–prepared statements.
"CPAs who report on financial statements prepared in accordance with GAAP or a special-purpose framework, such as the FRF for SMEs, will be held to the highest standards of professional practice by US Boards of Accountancy," according to the joint statement.
The NASBA has been outspoken against the FRF for SMEs since it was first proposed by the AICPA in January. The 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 GAAP, according to the AICPA.
The AICPA states that the framework complements the recent efforts made by the Financial Accounting Standards Board (FASB) and the Private Company Council (PCC) to modify US GAAP for private companies.
AICPA President and CEO Barry Melancon, CPA, CGMA, emphasized on June 10 that 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.
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, according to the AICPA. The framework, which draws on a blend of traditional accounting principals and accrual income tax methods of accounting, 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.
On June 13, less than a week after the AICPA introduced the financial reporting framework, the NASBA recommended to privately held businesses that they not use the FRF for SMEs because it goes against the efforts made by the FASB and the PCC to modify US GAAP.