All financial statements are prepared in accordance with a FRF e.g. Generally Accepted Accounting Principles (GAAP) in the United States of America, and International Financial Reporting Standards (IFRS).
The FRF for SMEs framework is a new accounting option for preparing streamlined, relevant financial statements for privately held, owner-managed, and smaller- to medium-sized for-profit private entities, that need reliable, financial statements, when GAAP financial statements are not required.
The FRF for SMEs framework is constructed of accounting principles that are especially suited and relevant to a typical SME. Examples include the following:
The FRF for SMEs framework uses historical cost as its measurement basis and steers away from complicated fair value measurements.
The FRF for SMEs framework consists of traditional accounting principles and accrual income tax accounting methods which are very familiar to lenders. The FRF for SMEs framework is intended to be utilized by entities whose lenders base their decisions principally on reliable operations and cash flows. The framework will appeal to such lenders because it is a reliable financial framework, providing relevant information, is simplified, contains explicit and comprehensive accounting principles, and has been subjected to professional scrutiny. Moreover, the FRF for SMEs framework is a cost-beneficial financial reporting option for their customers.
If your (small to medium size) business issues financial statements, and your bank does not require your financial statements to be issued according to GAAP, you might consider this new Financial Reporting Framework.
Steve Miksis is a Senior Manager in Audit & Accounting at Linkenheimer LLP CPA’s & Advisors.