By Michael T. Wherry, CPA
The Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SME) is a self-contained financial reporting framework not based on accounting principles generally accepted in the United States of America (GAAP). Special purpose frameworks, with the exception of the contractual basis of accounting, are commonly referred to as other comprehensive basis of accounting or OCBOA. Special purpose frameworks include cash basis, modified cash basis, tax basis, regulatory basis, contractual basis, and other non-GAAP basis of accounting that utilize a definite set of logical, reasonable criteria that is applied to all material items appearing in the financial statements.
The framework is a blend of traditional accounting principles and accrual income tax methods of accounting. It utilizes historical cost as its primary measurement basis. In addition, it provides management with a suitable degree of optionality when choosing accounting policies to better meet the needs of the end users of the financial statements. The framework avoids prescriptive, detailed standards and voluminous disclosure requirements. As a result, it is a more intuitive and understandable framework for small business owners and the users of their financial statements.
The FRF for SMEs accounting framework has been developed for small-to medium-sized entities that require reliable non-GAAP financial statements for internal and external uses. The framework can be used by entities in many industry groups and may also be used by unincorporated, as well as incorporated, entities. The framework is not intended to be a substitute for GAAP when GAAP-based financial statements are necessary, as determined by the management of a private company and its financial statement users. This framework would not be acceptable for submission of financial statements to the U.S. Department of Education (“DOE”) as their standards require GAAP basis financial statements. M&A does not anticipate the DOE will change their requirements. As a result, M&A will continue to follow this issue for any updates from the DOE.
Volume 1, Issue 1
Winter 2014
