Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs)

The American Institute of Certified Public Accountants (AICPA) issued a financial reporting framework that will greatly simply the financial reporting process for private companies.

The Financial Reporting Framework for Small and Medium-Sized Entities (FRF for SMEs) is a self-contained, special purpose framework intended for use by privately held, small-to-medium-sized entities in preparing their financial statements. The framework was developed to address transactions that are typically encountered by private, for-profit SMEs. FRF for SMEs is intended as a principles based framework and de-emphasizes “bright line” rules, a dependence on interpretive guidance and a need for extensive implementation materials. Rather, the FRF for SMEs emphasizes the use of professional judgment in applying overall principles.

Some of the more significant differences between accounting principles generally accepted in the United States of America (US GAAP) and the FRF for SMEs include the following:

  • No assessment of impairment for long-lived assets.
  • No concept of variable interest entities (VIEs).
  • No evaluation or accrual of uncertain tax positions (UTPs).
  • May elect to report income taxes using either the taxes payable method or the deferred income taxes method.
  • Goodwill is amortized and not tested annually for impairment.
  • A disclosure approach taken for derivatives and stock-based compensation plans.
  • Derivatives are recognized upon settlement (cash basis).
  • No hedge accounting.

The framework was issued by the AICPA on June 10, 2010 and is available for immediate use.

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