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Squire provides complete and personalized tax management and planning solutions to meet your needs.

Blog

Squire provides complete and personalized tax management and planning solutions to meet your needs.

Is There a GAAP in Your Financial Reporting?

I know first-hand how overwhelming the financial reporting process can be for our small to medium sized business clients.  We pride ourselves on making the financial reporting process as painless as possible for our clients.  For several year running, there has been a debate about the applicability of U.S. Generally Accepted Accounting Principles (US GAAP) to small non-public companies.  How many people reading your financial statements want to know about the sensitivity of level 3 fair value measurements to changes in unobservable inputs?  At a recent Financial Accounting Standards Board (FASB) Annual Update training, we discussed  the new options for Financial Reporting for Small and Medium Enterprises (FRF for SMEs) compared to the standard financial reporting under existing US GAAP.
In 2011, a “Blue-Ribbon Panel” comprised of members selected by the American Institute of CPAs (AICPA), the Financial Accounting Foundation (FAF) and the National Association of State Boards of Accountancy (NASBA) recommended a separate standard setting board and process for private companies.  The following year, the FASB chose instead to form the Private Company Council to determine exceptions for private companies, but maintain the same standards.  In response to this the AICPA created a new private financial reporting framework, which is not considered US GAAP, but is an Other Comprehensive Basis of Accounting (OCBOA).  This new AICPA framework was issued in 2013 and is called FRF for SMEs.  The 172 page framework is an attempt to make financial reporting much less complex for certain small private companies.  Once again, the new AICPA framework is not considered US GAAP, but it may be an option for some of our small private companies that we can help you navigate.
Below is a summary from the AICPA of some of the reasons/criteria that may lead you to consider using the FRF for SMEs instead of US GAAP to prepare your entities financial statements:
 ·         The entity does not have regulatory reporting requirements that require it to use GAAP-based financial statements.

·         A majority of the owners and management of the entity have no intention of going public.
·         The entity is for-profit.
·         The entity may be owner-managed (closely held company in which the people who own a controlling ownership interest are esentially the same set of people who run the company).
·         Management and owners of the entity rely on a set of financial statements to confirm their assessments of performance, cash flows, and of what they own and what they owe.
·         The entity does not operate in an industry where it is involved in transactions requiring highly-specialized accounting guidance, such as financial institutions and governmental entities.
·         The entity does not engage in overly complicated transactions.
·         The entity does not have significant foreign operations.
·         Key users of the entity’s financial statements have direct access to the entity’s management.
·         Users of the entity’s financial statements may have greater interest in cash flows, liquidity, statement of financial position strength, and interest coverage.
·         The entity’s financial statements support applications for bank financing when the banker does not base a lending decision solely on the financial statements but also on available collateral or other evaluation mechanisms not directly related to the financial statements.

If you think FRF for SMEs might simplify your financial reporting process, our Squire team would be happy to discuss the options with you.  Please contact me or your main contact here at Squire to set up a free consultation.
Phone: 801-225-6900
@RayChipman