The American Institute for CPAs will soon roll out a new financial reporting framework for privately owned, for-profit, small and medium-sized businesses. The new guidelines aim to simplify preparation of financial statements.
“People have been concerned that accounting is getting too complicated,” Tom Eiseman, Decosimo CPA and director of assurance practice, said.
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The framework is optional, he also said. Business leaders will have a choice to go with this framework or with generally accepted accounting principles (GAAP).
Small and medium-sized business owners could use this framework-which is currently it a draft stage-when they present financial work to lenders and bankers, John Bond, Decosimo CPA and assurance manager, said.
“It was initially expected to be released in spring or summer,” he said. “That may have been slowed. But as soon as it’s issued, companies can begin to contemplate how soon they want to begin using it.”
The new framework isn’t applicable to publicly traded companies, the leaders said.
And business owners will likely have to work with their lenders or bankers on the framework, and both parties may have to agree that the new, simplified guidelines are the best way to report the information.
In recent years, financial reporting has become more and more complex, Bond and Eiseman said.
Some standards were changed after the Enron accounting fraud scandal of 2001, Eiseman said.
“They had a lot of smart people that were being paid a lot of money to make the company look better to raise the stock price,” she said. “Enron was doing some tricks … where they were keeping debt off financial statements.”
So there have been some very complex standards implemented to address that.
The new framework should mean less burden for owners of small and medium-sized business.
“Small business owners want to run their business-they don’t want to become an accountant,” Eiseman said.
Leaders with the American Institute for CPAs took comments from stakeholders between Nov. 1 and Jan. 30, and now, they are considering that feedback.
“When the framework is finalized, there will be no effective date so that the guidance will be available for use immediately,” Bond wrote in a summary of the framework.
Bond further summarized the benefits of the new guidelines below.
Major benefits from preparing financial statements under the new framework, according to Bond:
-A stand-alone, self-contained reporting framework when GAAP-based financial statements are not required
-Guidance that is built upon a foundation of reliable and comprehensive accounting principles
-It uses traditional and familiar accounting principles based on accrual accounting
-Its emphasis is placed on historical cost measurement basis
-Despite its simplicity, it is a more robust financial reporting framework than current non-GAAP options
-It permits the avoidance of accounting for deferred income taxes and uncertain tax positions
-It reduces adjustments from book reporting to tax reporting
-It reduces disclosure requirements while still providing users with relevant financial information
-It does not require consolidation of the accounts of variable interest entities
-Accounting for leases will be closely aligned with current accounting treatment
-Goodwill and other intangibles are subject to amortization rather than impairment testing
-It does not require the reporting of comprehensive income
-Guidance is usable across industries and by incorporated and unincorporated entities