May 1, 2013. By Jenea Smith, CPA. Executive Summary. This article overviews recent proposed changes by the American Institute of Public Accountants (AICPA) with a focus to the impact on small and medium-sized businesses. G&J Seiberlich & Co LLP works with Safe Harbor LLP to bring efficient tax and accounting services to San Francisco Bay Area businesses.
AICPA Task Force
In the world of financial reporting, the Enron debacle was one of the events in recent history that caused a major shift in standards. The aftermath resulted in the Sarbanes-Oxley Act and new provisions flooded the accounting industry. Large and small business entities alike were affected. While large corporations have the monetary and professional resources for applying the new regulations, smaller companies are hit with increased expectations for financial statement reporting that too often seem like the adage of trying to fit a square peg in a round hole.
More than a decade has gone by with new regulations being broadly applied to businesses of all sizes. Questions are often raised about the appropriateness of the standards for large corporations versus smaller companies, especially related to the costs involved in meeting the reporting requirements. Alas, standard makers heard the call…
The American Institute of Public Accountants (AICPA) set up a task force to address the issue of proper reporting standards for smaller privately-owned businesses. It is called the Financial Reporting Framework for Small- and Medium-Sized Entities Task Force, or FRF for SMEs Task Force (Task Force).
The Task Force is charged with developing a framework that is suited for SMEs and the financial reporting needs of lenders and other financial statement users. The efforts are focused on giving reporting solutions for SME business owners while considering the cost-benefit of the application. It crosses traditional accounting principles with accrual income tax methods of accounting, and is much less restrictive than the accounting principles generally accepted in the United States (GAAP). The Task Force outlines the following four attributes in developing the criteria for financial reporting:
- Objectivity – Free from bias.
- Measurability – Permits reasonably consistent measurements,
- Completeness – Sufficiently complete so that those relevant factors that would alter a conclusion about the financial statements are not omitted.
- Relevance – Relevant to financial statement users.
The AICPA has released an exposure draft that is available for public inspection. This exposure draft outlines purpose and scope, definitions, appropriate application, presentation and disclosure of the proposed reporting. This framework will be optional for management to adopt. Therefore, there is no effective date for its implementation.
Click here to see what is in the exposure draft.
In addition, the Financial Accounting Foundation recently established the Private Company Council (PCC), with the purpose of improving the process of setting accounting standards for private companies. The AICPA Financial Accounting Standards Board (FASB), along with the PCC is working on what is called Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. This is meant to provide FASB and PCC guidelines on whether it is appropriate to apply alternatives to GAAP for private companies in recognition, measurement, disclosure, display, effective date, or transition. There will be more to come on this as it is in the comment phase of the formation process.
G & J Seiberlich & Co LLP and Safe Harbor LLP – Services for San Francisco Bay Area Businesses
We at G & J Seiberlich & Co LLP and Safe Harbor LLP have professionals who are well-trained and can assist with you on your financial reporting needs. We can also consult with you on the proper application of new reporting standards.
If you need additional information regarding this article, contact Wendell (Dell) R. Coats, Partner at G & J Seiberlich & Co LLP at 707-224-7848 or email dell “at” gjscollp.com, or contact Chun Wong at Safe Harbor LLP at 415-742-4249 or email cwong “at” safeharborcpa.com. You can also click here to send an instant email message.
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