Written by: Keith Frame, CPA

Huh? Like it or not, another set of accounting standards has been created. 

The “Financial Reporting Framework for Small and Medium Sized Entities” has just been released by a task force of accounting professionals and the American Institute of Certified Public Accountants. This set of accounting standards is brand new and is an addition to existing standards. One now has a choice of GAAP (generally accepted accounting principles), OCBOA (other comprehensive basis of accounting which can include cash basis, modified cash basis, tax basis, regulatory basis, contractual basis, etc.), IFRS (international financial reporting standards) and other non-GAAP bases of accounting.

While one might consider this another “piling on” of accounting standards, the intention here is to cut through all the technical complications that have been added to GAAP over the past 30 years and boil it down to the standards that really matter to smaller companies. The cost to comply with GAAP has grown significantly over the years but the benefit of doing so for smaller companies has been non-existent. While many GAAP requirements make great sense for large, publicly traded companies, the same standards add unnecessary costs and often create confusing financial statements for small entities forced to adopt them.

This new reporting framework is available to be used by small and medium sized companies right now. The AICPA has no authority to require or prevent the use of these standards. They are purely optional. It will be interesting to see how long it will take for the concept to get traction amongst financial statement preparers and users. In concept, it makes a lot of sense for many of our clients but we have no idea how the broader world of investors and lenders will react. Will a lender currently requiring GAAP financials be satisfied with a financial statement using FRF for SME’s? Stay tuned.