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New Year Will Bring New Financial Reporting Option for Smaller Private Businesses

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New Year Will Bring New Financial Reporting Option for Smaller Private Businesses

Privately owned, for-profit businesses have had limited choices when it comes to financial reporting. The most comprehensive basis, U.S. GAAP, often requires more information than many private companies need to understand their business’ performance or apply for a loan. Non-GAAP alternatives generally focus on tax information or cash flows and may not be sufficient. The American Institute of Certified Public Accountants has recognized this gap and is developing a financial reporting framework to fill it.

The AICPA’s proposed new Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) is a less complicated and less costly reporting option for SMEs that are not required to have U.S. GAAP-based financial statements. The framework will be more robust than current non-GAAP options while presenting a more relevant framework that private companies may choose to use. The FRF-SMEs, which will be applicable to many industries, will result in easier to understand and more useful financial information for private company owners and users of their financial statements, such as bankers, insurers and others.

Importantly, because the framework will consist of suitable criteria for general-use financial statements, the resulting financial reports will provide company management with confirmed assessments of performance, an understanding of what the company owns and owes, and knowledge of all relevant cash flows. Users of those financial statements will appreciate that they are based on a reliable, principles-based framework.

The FRF for SMEs, which will be issued as final in late spring 2013, may prove to be the ideal accounting basis for owner-managers and users who need financial statements prepared in a consistent manner in accordance with a framework that has undergone public comment and professional scrutiny.        We invite you to provide your input on the framework. It is available at aicpa.org/FRF-SMEs as is additional information on the proposal. Comments are due January 30, 2013.

It’s a dynamic time for financial reporting. Having a framework tailored to smaller enterprises to ease costs and other resources while providing enhanced financial information is an important step in supporting millions of America’s Main Street businesses.