The Auditing Standards Board’s Clarified Auditing Standards define a fair presentation framework. To paraphrase, such a framework includes all disclosure necessary to enable users to understand an entity’s financial position, results of operations and cash flows. The FRF for SMEs requires such a framework that presents the substance of transactions and other events following the basic elements of financial statements and the recognition and measurement criteria set forth in this framework.
This fair presentation framework requires:
- Applying concepts in the FRF for SMEs;.
- Disclosing information about the material effects of transactions or events on the financial statements.
- Including information in financial statements that is clear and understandable.
Management is responsible for exercising professional judgment to disclose sufficient information about the extent and nature of transactions or events having an effect on the entity's financial statements, even though they may not be specifically required the the FRF.
Management will disclose information so that it clearly conveys the nature and extent, and significant terms and conditions, of the related transactions and so that it is easily understandable. Immaterial items may be grouped together for financial statement presentation.
As with financial statements prepared for other frameworks, management should consider whether the going concern basis of accounting is appropriate. Use of the going concern basis is appropriate unless management is planning to liquidate the entity or has no other alternative but liquidation. The FRF for SMEs should only used by an entity that is a going concern.
In 2014, Wiley & Sons will publish my book, Performing Audits, Reviews and Compilations for Entities Using the AICPA’s Financial Reporting Framework for Small and Medium-Size Entities. The contents of this book will contain references to, and illustrations from, Wiley & Sons’ Advantage Audit, an electronic documentation system for audits, reviews and compilations in numerous industries. The book will contain guidance and illustrations for documentation on audits of small and medium-size entities using this and other reporting frameworks. To receive advance information on the progress of my book, you may sign up for my future newsletters at www.cpafirmsupport.com