The so-called ‘small GAAP’ from AICPA is gonna’ be great. It’s actually called financial reporting framework for small- and medium sized entities and it’s not GAAP, but you get the point.

Just finished watching a webinar from the AICPA, Financial Reporting Framework for Small- and Medium-sized Entities FRF for SMEs

This framework, FRF-SME, will be extremely helpful for owner-managed businesses.

If you’ve been waiting for “small-GAAP” for a decade or three, it has finally arrived.  This will be one of two ways you can get to simpler, easier financial statements.

I will provide a few random thoughts on key ideas from the webinar.

Overall goal

The goal of FRF-SME is to provide a formal structure within OCBOA. You can still use cash basis, modified cash, or income tax framework if that is more appropriate and GAAP is not needed.

Chuck Landis’ overall description is this is trying to “roll the clock back to the intermediate accounting text” used when he was studying in the mid-‘70s.

The technical phase is now called Special Purpose Framework instead of OCBOA.

Why is FRF-SMEs needed? From the course:

Privately-owned small- and medium-sized entities are looking for a more relevant, less-complicated and cost-beneficial framework for their financial reporting needs

Bankers and other financial statement users also need easier-to understand, useful financial statements that are based on a reliable, principles-based framework

This can help users…

..cut out the noise..

from financial statements.


The effort from the Private Company Council from FASB will focus on modifying GAAP for private companies.  FRF-SMEs is for those who don’t need GAAP financials.

NPOs are not prohibited from using FRF-SME but it is not recommended. That makes sense since there are so many special issues that really need to be addressed when presenting their financials. There are so many special reporting needs for NPOs and those issues aren’t covered. Just for starters, there’s no discussion of contributions or donor restrictions.

Some detail accounting ideas in the framework

The framework won’t have EPS, segment reporting, OCI, or interim reporting. Can I hear an “amen”?

There will be minimal use of Fair Value other than equity securities held for sale. Everything else is historical cost.

Derivatives are handled mainly through disclosures. The typical derivatives for SMEs are likely to be an interest rate swap bought from their lender, who is obviously the counterparty and is likely the party pricing the swap.

Very simplified approach to consolidation. Variable Interest Entity concepts aren’t included. There will be a choice to consolidate subsidiaries or account for them on equity basis. That would allow parent-company only financials.  How ’bout another “amen”?

On income taxes, the company can choose either the taxes payable or deferred tax method as an accounting policy.

Goodwill will be amortized, using either 10 years or amount used for federal income tax purposes.  None of that impairment assessment.

Other comments

Accountant reporting will be the same as for any other OCBOA. Not a big deal for us to report on those standards. The AICPA will provide some report examples.

The AICPA is also planning to have some tool kits and checklists.  They plan to have a mapping tool to link GAAP and the framework.

Final framework is expected in the first half of 2013, after tax season.  It can be used as soon as it is issued.

If you have longed for a simplified alternative to current GAAP, check out FRF-SME.  This will be a superb option for owner-manager companies.

1 thought on “The so-called ‘small GAAP’ from AICPA is gonna’ be great. It’s actually called financial reporting framework for small- and medium sized entities and it’s not GAAP, but you get the point.”

  1. Pingback: More background on FRF-SMEs, the ‘small GAAP’ « Attestation Update – A&A for CPAs

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