The AICPA’s new Financial Reporting Framework for Small and Medium-Sized Entities was big news when it was released at the Institute’s annual Practitioners’ Symposium and Tech+ Conference … and it just keeps getting bigger.
The framework is being touted as a financial-reporting alternative for small and mid-sized private companies that are not required to conform with Generally Accepted Accounting Principles (or GAAP). The AICPA’s position seems clear: Where GAAP is required, private companies would be wise to follow the advice of the new Private Company Council, the Financial Accounting Foundation, and the Financial Accounting Standards Board, who are working to expand GAAP to private companies.
If GAAP is not required, however, the new framework for SMEs might be a reasonable alternative.
“Some private businesses, typically smaller or those with less complex business models, will see the AICPA’s framework as an effective alternative to other existing financial reporting options,” said AICPA President and CEO Barry Melancon. “Larger, more sophisticated private businesses may, in the future, choose to use GAAP for private companies, and still others with unique user needs, regulation or intentions to go public might use GAAP for public companies.”
Not everyone is on board with the new framework, however.
Specifically, the National Association of State Boards of Accountancy (NASBA) is urging private companies to not adopt the new AICPA framework.
NASBA “reaffirmed its support of Generally Accepted Accounting Principles as modified by FASB to meet the financial reporting needs of private companies,” Accounting Today reported. “NASBA said it believes significant progress is being made by the Private Company Council of the FASB. ‘Consequently, private companies should not consider adopting (the framework),’ said NASBA in a press release.”
So which is it?
The answer, says Tom Hood, is “both.”
I spoke with Tom this morning, and he made the following points:
“That is how I see the framework,” Tom said. “To me, it’s guidance for practitioners who opt out of GAAP due to extreme complexities that are often irrelevant to the financials of small businesses.”
For its part, the AICPA released a statement that addresses three main concerns put forth by NASBA. Those concerns are in italics below, and the AICPA’s response follows each.
Melancon said discussions between the AICPA and NASBA will continue in an effort to reach some mutual understanding.
In the meantime, I cornered Melancon at the Practitioners’ Symposium and asked him what CPAs need to know about the framework. Here’s what he said.
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