AICPA Releases Financial Reporting Framework for Small and Medium-sized Private Entities | Practical Law

AICPA Releases Financial Reporting Framework for Small and Medium-sized Private Entities | Practical Law

The American Institute of Certified Public Accountants (AICPA) released a financial reporting framework for small and medium-sized private entities.

AICPA Releases Financial Reporting Framework for Small and Medium-sized Private Entities

by PLC Corporate & Securities
Published on 13 Jun 2013 • USA (National/Federal)
The American Institute of Certified Public Accountants (AICPA) released a financial reporting framework for small and medium-sized private entities.
On June 10, 2013, the American Institute of Certified Public Accountants (AICPA) released a financial reporting framework that is intended as an alternative set of accounting principles under which small and medium-sized private entities can voluntarily decide to report. AICPA does not have the authority to mandate that any entity follow this framework. The framework:
  • Uses historical cost.
  • Offers a degree of optionality to tailor the presentation of statements to the specific business.
  • Includes targeted disclosure requirements.
  • Reduces book-to-tax differences.
The framework is intended to be simpler and less costly for entities that are not required to report under US GAAP. The framework is not based on US GAAP, and financial statements prepared using the framework will not be in compliance with US GAAP. Therefore, a company that currently needs to have US GAAP-compliant financial statements for any reason (including because lenders or investors require them) would not want to use AICPA's framework. A company that does not currently need to have US GAAP financials, but that plans to undertake certain kinds of capital raising in the future (for example, going public or seeking financing from investors that typically demand US GAAP financial statements) may also not want to use the framework.
According to its preface, the framework may be appropriate for an entity that, among other characteristics:
  • Does not have regulatory reporting requirements that essentially require it to use GAAP-based financial statements.
  • Has no intention of going public.
  • Is for-profit.
  • Is owner-managed.
  • Does not operate in an industry involving transactions that require highly-specialized accounting guidance, such as financial institutions and governmental entities.
  • Does not engage in overly complicated transactions.
  • Does not have significant foreign operations.
Separately, for several years the Financial Accounting Standards Board (FASB) has pursued a variety of initiatives aimed at tailoring US GAAP to be less complex and more relevant for private companies. On June 10, 2013, FASB announced that it will issue three proposals offering private company alternatives within US GAAP in late June for public comment.
For more information on accounting standards applicable to US companies, see Practice Note, Accounting, Auditing and Financial Reporting in the US: Governing Authorities.