Slide 1: Financial Reporting Framework for Small- and Medium-Sized Entities
Financial Reporting Framework for Small- and Medium-Sized Entities An Introduction for [Name of Client or Financial Statement User]
Slide 2: Overview
Overview • What is the Financial Reporting Framework for Small- and Medium- Sized Entities? • Why was it developed? • Who can use it? • What does it change? • When can it be implemented? • How will you benefit?
Slide 3: What Is It?
What Is It? • New special purpose framework, or OCBOA, for preparing financial statements • Developed by the AICPA and released June 10, 2013. • Provides an alternative to other frameworks: – GAAP – Income tax basis – Cash basis – IFRS for SMEs
Slide 4: Why Was It Developed?
Why Was It Developed? • In response to— – Accounting complexity – Disclosure overload • To better meet the needs of small businesses and their financial statement users
Slide 5: Needs of Small Businesses
Needs of Small Businesses • Relevant, streamlined reporting, more robust than cash or income tax basis • Flexibility in choosing accounting policies • Simplified guidance for typical, plain vanilla transactions • Targeted disclosures • Concise, plain-English standards that are easy to follow and kee
Slide 6: Who Can Use It?
Who Can Use It? • Entities that— – Are not required to prepare GAAP-based financial statements. – Have no plans to go public in the foreseeable future. – Operate for profit. – Are owner-managed. – Do not operate in an industry with highly-specialized accounting guidance, for example, no financial in
Slide 7: What Does It Change?
What Does It Change? • Basic features • Contents of the FRF for SMEs • Primary differences from GAAP • How your financial statements will change
Slide 8: Basic Features
Basic Features • Historical cost based • Blend of traditional GAAP and accrual income tax basis • Principles-based with little prescriptive guidance • Fair presentation framework • Same objective as GAAP: To account for transactions according to their economic substance
Slide 9: Contents of the FRF for SMEs
Contents of the FRF for SMEs • General principles • Guidance on specific financial statement elements • Complete set of disclosure requirements • Transition guidance • Glossary • No industry-specific guidance
Slide 10: Primary Differences from GAAP
Primary Differences from GAAP • Income taxes: Choice between taxes payable method (current income tax assets and liabilities only) or deferred income taxes method. No accounting for uncertainties. • Intangible assets acquired in a business combination: Choice to not separately recognize them but inc
Slide 11: Primary Differences from GAAP
Primary Differences from GAAP • Reporting of subsidiaries: Choice between consolidation or equity method for all subsidiaries. Parent- only financial statements permitted. • Leases: Similar to the method used for income tax purposes. Lease classification guidance less prescriptive than GAAP.
Slide 12: Primary Differences from GAAP
Primary Differences from GAAP • Asset impairment: No requirement to assess assets for impairment; however, there are disclosures. Left up to judgment. • Investments in debt and equity securities: Recorded at cost unless held for sale, in which case recorded at market value with changes recorded in i
Slide 13: Primary Differences from GAAP
Primary Differences from GAAP • Stock-based compensation: Compensation expense not recognized. Certain disclosures required. • Defined benefit plans: Choice between current contributions payable method (expense for current year contribution only) or an accrued benefit obligation method.
Slide 14: How Your Financial Statements Will Change
How Your Financial Statements Will Change • [Content to be developed for specific client or financial statement user]
Slide 15: When Can It Be Implemented?
When Can It Be Implemented? • Conversion is entirely optional • Can be implemented at any time • Precondition for implementation: Acceptance by financial statement users
Slide 16: How Will You Benefit?
How Will You Benefit? • Information in financial statements is more relevant for small business decision-making • Disclosures are more targeted and understandable • Financial statements are easier and less costly to prepare and audit (or review) • Standards are stable; changes over time are expected
Slide 17: Additional Resources
Additional Resources • Read the Financial Reporting Framework for Small- and Medium- Sized Entities • Visit our website at [URL address] • Read our newsletter • Review the AICPA toolkit for small businesses [or financial statement users] at www.aicpa.org/FRF-SMEs
Slide 18: [CPA Firm Logo]
[CPA Firm Logo]
Slide 19: Questions?
Questions?