Financial Reporting Framework for Small and Medium Sized Entities-New Option

by Hiller Hardie 9. September 2013 12:20

The AICPA recently released a new reporting framework for Small and Medium Sized entities (“SME”). This is a special purpose framework, not to be confused with the Private Company Council initiative, which will provide GAAP based guidelines for private companies. This is a key distinction-the SME framework is another comprehensive basis of accounting (“OCBOA”), which is non-GAAP. Other OCBOA’s include cash basis, income tax basis and regulatory basis.

 

The SME framework may be attractive to smaller companies interested in providing meaningful financial data to owners and other users, without the more onerous and rigorous requirements imposed by traditional GAAP. For example, the SME framework simplifies accounting for goodwill, but preserves the pillars of good accounting such as the accrual basis and historical cost.

 

Small business owners should evaluate the merits of the SME framework, as well as the needs of the financial statement users. Loan covenants and lender requirements will be a key factor in determining their suitability.

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