Are you a prudent business person staring at his/her five-line balance sheet thinking, "As a prudent business person whose financial reporting isn't bound by generally accepted accounting principles and doesn't engage in transactions that require highly-specialized accounting guidance, I'm interested in some simpler accounting framework options. I've gone through the PCC's Private Company Decision-Making Framework but I really like to obsess over details because I'm demented like that. Gosh, I wish there a document designed to help me determine if the AICPA's FRF for SMEs was right for my business."
Yes? This is you? Boy oh boy, it's your lucky day:
The American Institute of CPAs (AICPA) has released guidelines to help privately held businesses determine which accounting framework, including the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), best meets their financial reporting needs. The National Association of State Boards of Accountancy (NASBA) provided input into the development of the new tool for CPAs and America’s Main Street (#MainStFinancials) businesses.Prior to the issuance of this tool, the AICPA released illustrative financial statements and disclosures, developed as an aid to implementing the FRF for SMEs framework and to help distinguish between financial statements based on the new framework and GAAP-prepared statements.The AICPA has developed the FRF for SMEs framework for use by private, owner-managed businesses when GAAP financial statements are not required. The framework was designed to provide financial statement users with useful, relevant information in a simplified, consistent, cost-effective way.The tool is available at no cost at Decision Tool for Adopting an Accounting Framework.
Here's the deal — if you're running a "private, owner-managed business" you probably use the cash basis of accounting. At some point, you may walk into your friendly neighborhood bank and say, "I'd like some money, please," the bank will say, "Sure! We just need you to fill out these forms, and submit tax returns and financial statements," and you'll provide them. No big deal. You'll get the money and everything will be great.
Now it's possible that you don't get the money right away; the bank may come back to you and say, "Hi, business owner. These financial statements are great, but we'd like an auditor's opinion with these," and you might grit your teeth a bit but eventually come back with, "Sure thing. Let me get on that."
Then you'll hire your friendly neighborhood CPA to audit your books; there may be some accounting method adjustments, there may not be. You'll get the auditor's opinion with the audited financial statements and a few footnotes. The bank will review them and say, "Thanks for doing that. Here's your money." (Or maybe not, but we're trying to keep this simple, so SHUT IT.)
AT NO POINT IN TIME will your banker or your CPA say, "You could really use accounting framework that is intended for a private, owner-managed business such as yourself. Have you heard about this FRF for SMEs from the AICPA? It's the coolest thing going right now and we should consider it."
NO. NO, THEY WILL NOT.
Don't forget what Greg wrote earlier this week:
The FRF is not GAAP. It's an OCBOA, joining the prestigious ranks of cash basis accounting and modified cash basis accounting. Unlike Little GAAP, the FRF is complete and ready to use right now, as long as your company knows how to apply it, your CPA knows how to provide assurance for it, and your bank approves of you using it.