Pcps Frf Sme Staff Training

7/27/2019 Pcps Frf Sme Staff Training

1/44

Financial Reporting Frameworkfor Small- and Medium-Sized Entities

FRF for SMEs Accounting Framework

Name of presenterAudience

Date

Copyright 2013 American Institute of CPAs


2/44

Private Companies Practice Section

Instructions To Firms

Below are some suggest ions when us ing th is

PowerPoint to introdu ce your team members to the

FRF for SMEs Framework

This PowerPoint is an overview of the framework. Reviewing this

is not a substitute for reading and understanding the actual

guidance. Several slides have a comment note for you to consider based on

your processes or to consider incorporating relevant examples.

To make this most useful for your team, look for other points

within the presentation where you have relevant examples or

experiences.Once you have tailored this PowerPoint to your firms

cu rrent pract ices, delete this s l ide and the other red

notes youll find in the following slides.

2


3/44


Small and medium-sized entities (SMEs) may not

need GAAP-based financials

If GAAP isnt required, a special purpose

framework may be the financial reporting option

currently used Tax

Cash

Regulatory

ContractualSpecial Purpose Framework is the term that

replaces OCBOA

Current Special Purpose Financial Reporting

Framework Environment


4/44


AICPA has released the

Financial Reporting

Framework for SMEs

Non-GAAP

Streamlined Based on traditional and

proven accounting methods

Provides meaningful

financial reports without

needless complexity

A New Non-GAAP Special Purpose Financial

Reporting Framework


5/44


An Additional non-GAAP Framework


6/44


FRF for SMEs

Not GAAP - Special

Purpose Framework

Is developed

specifically for private

small businesses

Private Company Council

Is GAAP

Modifies GAAP for

private companies

Separate from FAF and Private Company

Council


7/44Private Companies Practice Section

Useful Resources

Financial Reporting Framework for Small- and

Medium-Sized Entities

The body of the framework outlining the principles and

concepts

An Introduction to the Financial Reporting

Framework for Small- and Medium-Sized Entities

A quick look at why the framework was developed, benefits,

key concepts, etc.

Comparison of FRF for SMEs to Other Bases of

Accounting

Compares to GAAP, Tax and IFRS for SMEs



Useful Resources

Illustrative Financial Statements

Examples with comparisons to GAAP financials

Illustrations of the Application of Certain Principles

and Criteria Examples of how to apply certain principles

- Transition

- Going concern

- Amortization of goodwill- And more

www.aicpa.org/FRF-SMEs



What entities may want to use FRF for SMEs?

Owner-managed closely heldFor-profit

No regulatory reporting requirements that

essentially require GAAP-based financial statements

No intention of going publicNot in an industry that requires highly-specialized

accounting guidance, such as financial institutions

and governmental entities

Does not have overly complicated transactionsDoes not have significant foreign operations

Key users of the financials have direct access to the

entitys management



Authority and effective date

Use of the framework is purely optional

The AICPA has no authority to require the use of the

FRF for SMEs accounting framework for any entity

Management represents that such financial

statements have been prepared in accordance with

the AICPAs FRF for SMEs accounting framework, a

special purpose frame-work

Because use of the framework is optional, there is

no effective date for its implementation



Advantages of FRF for SMEs

Offers clients a cost effective, reliable, and simple

method of accounting

Quickly portrays what their business owns, what it owes and its

cash flow

Closely aligns with how they run their businesses

The framework is concise, self-contained and stable

Only relevant financial reporting topics are included

Written to be easy to understand

Frequent changes to the framework are not expected.

Historical cost is the primary measurement basis

Avoids complicated fair value measurements.




Financial statements will more closely align withincome tax returns because there will be fewer

book-to-tax adjustments.

Accounting policy options will allow management toselect what is best for their purposes.

Example - current taxes payable method or the deferred tax

method

No impairment testing is required

Goodwill is amortized over the same period

as for federal tax purposes.



Advantages of FRF for SMEsOnly relevant principles are included and the

accounting is simplified. Accounting for long-lived assets follows an

amortized/depreciated cost approach.

- No impairment testing is required

No other comprehensive income (OCI)

No variable interest entities (VIEs). Parent-only financial

statements are allowed

No complicated accounting for stock compensation and

derivatives

No hedge accounting Note - FASB exposure drafts relating to leases and revenue

recognition will substantially change current GAAP treatment

Disclosures are targeted to small business issues.




FIRM: Note your new disclosure checklist process forengagements using FRF for SMEs.

Targeted Disclosures

Disclosures are streamlined to avoid

excess detail, complexity, and

extraneous information

If a user requires additional information,management can tailor the nature and extent of

disclosures to suit those needs


15/44



A Look at Key Principles of FRF for SMEs

Optionality in Certain Accounting PoliciesIncome taxes

Taxes payable or deferred income taxes method

Subsidiaries Consolidate or equity method

Joint ventures

Equity method or proportionateconsolidation

Long-term contracts and service contracts

Percentage of completion or the completed contract method



A Look at Key Principles of FRF for SMEs

Intangible assets acquired in a business

combination Separately recognize or include in goodwill

Internally-generated intangible assets

Either expense or capitalize development costs

Certain interest costs

Expense or capitalize if related to certain items of inventories,

internally-generated intangible assets, and PP&E

Defined benefit plans

Current contribution payable or one of the accrued benefit

obligation (ABO) methods



FIRM: Note where thedownloaded framework

is saved in your

practice.

Note where thedownloaded

implementation

materials are also.

Framework and otherresources can be

downloaded at

www.aicpa.org/FRF-

SMEs.

Content of the FRF for SMEs


19/44


When preparing financialstatements, management

should make an assessment

of whether the going

concern basis of accountingis appropriate

Chapter 2: General Principles


20/44


Going Concern

Requires management assessment of whether thegoing concern basis of accounting is appropriate.

When management becomes aware of material

uncertainties relating to events or conditions andconcludes that a known event or condition is

probable of having a severe impact on the entitys

ability to realize its assets and discharge its

liabilities in the ordinary course of business theentity should disclose those uncertainties along

with its plans for dealing with the adverse effects of

the conditions and events


21/44


This chapter Requires an entity to prepare an

opening statement of financial position

at the date of transition

Allows management to elect certain

exemptions to the principle that the

opening statement of financial position

should comply with the framework

Requires certain disclosures including

the amount of each charge or credit to

equity at the date of transition

Guidance is available in the

Illustrations and Applications

resource.

Chapter 3: Transition


22/44


Chapter 13: Intangibles

Goodwill is amortized over the same periodas that used for federal income tax purposes

or 15 years.

No impairment testing

All intangible assets are considered to havea finite useful life and are amortized over

their estimated useful lives.


23/44


Chapter 21: Income TaxesThis chapter

Allows an accounting policy choice to use either the

- taxes payable method

- only current income tax assets and liabilities are recognized

- or deferred income taxes method

- recognize a deferred income tax liability whenever recoveryor settlement of the carrying amount of an asset or liability

would result in deferred income tax outflows;

- recognize a deferred income tax asset whenever recovery or

settlement of the carrying amount of an asset or liability

would generate deferred income tax reductions States that no provision for income taxes should be made in the

financial statements of businesses if income is taxed directly to the

owners


24/44


Chapters 22: Subsidiaries

Allows management to make an accounting policychoice to either consolidate its subsidiaries or use

the equity method

Subsidiary is an entity that is more than 50% ownedby the reporting entity

All subsidiaries should be accounted for using the

same method.


25/44


Chapters 23: Consolidated Financial

Statements and Noncontrolling Interests

A material difference in the basis of accountingbetween a parent and a subsidiary precludes the

preparation of consolidated financial statements and

the use of the equity method.

Combined financial statements may be useful, but

are not a substitute for consolidated financial

statements.

When combined financial statements are prepared,

similar principles to those used when preparing

consolidated financial statements apply.


26/44


Familiar accounting

Overriding concept of

transferring substantially all the

benefits and risks of ownership

to the lessee.

Criteria for capitalizing

a lease generally

matches criteria for taxpurposes

Reduces book to tax

adjustments

Chapter 25: Leases


27/44


Chapter 25: Leases

Classifies leases from the point of view of thelesseeas either:

Operating

- A lease in which the benefits and risks of ownership are

substantially retained by the lessor should be accounted foras an operating lease

Capital

- A lease that transfers substantially all the benefits and risks

of ownership from the lessor to the lessee should beaccounted for as a capital lease


28/44


Chapter 25: Leases

Classifies leases from the point of view of the lessoras either:

Operating

- A lease in which the benefits and risks of ownership are

substantially retained by the lessor should be accounted foras an operating lease

Sales-type or Direct Financing

- A lease that transfers substantially all the benefits and risks

of ownership from the lessor to the lessee should beaccounted for as a sales-type or direct financing lease by the

lessor


29/44


Chapter 29: New Basis (Push-Down)

Accounting

Assets and liabilities may be comprehensivelyrevalued by means of push-down accounting when

an acquirer gains control of an entity

Control of an entity is gained when more than 50percent of the outstanding residual equity interests

in the entity have been acquired

When an acquirer gains control of an entity a newcost basis for a continuing entity is established


30/44


FRF for SMEs

U.S. GAAP

Tax basis OCBOA

IFRS for SMEs

Comparisons with other frameworks


31/44


Reporting under FRF for SMEs

Financial statements prepared under the FRF forSMEs can be

Audited

Reviewed

Compiled

The same standards apply when reporting on other

SPF financial statements

Compilation: AR section 80, Compilation of Financial

Statements

Review: AR section 90, Review of Financial Statements

Audit: AU-C section 800, Special ConsiderationsAudits of

Financial Statements Prepared in Accordance With Special

Purpose Frameworks


32/44


Firm: Use this slide toindicate where staff can

find the sample reports

for audited, reviewed or

compiled financials.Sample reports can be

found in the

Introduction to the

Financial ReportingFramework for Small-

and Medium-Sized

Entities

Sample Reports


33/44


Sample standard review report

Independent Accountants Review Report

Board of Directors

XYZ Company

[last paragraph]

Based on our review, we are not aware of any material

modifications that should be made to the accompanying

financial statements in order for them to be in conformity

with Financial Reporting Framework for Small- and

Medium-Sized Entities, as described in Note 1.

[Signature of accounting firm or accountant, as appropriate]

[Date]


34/44


Sample basis of presentation note

The accompanying financial statements have beenprepared in accordance with the Financial Reporting

Framework for Small- and Medium-Sized Entities issued

by the American Institute of Certified Public Accountants.

This special purpose framework, unlike generally acceptedaccounting principles (GAAP) in the United States of

America, does not require the recognition of deferred

taxes. We have chosen the option to recognize only

current income tax assets and liabilities.

Other pr imary d i fferences would be descr ibed as

necessary.


35/44


Firm: Note where youhave located the

checklist within your

methodology

resources.Disclosures are

streamlined to avoid

excess detail,

complexity, andextraneous information

Presentation and Disclosure Checklist


36/44


Outreach to clients

Firm: Use this point in the presentation to discuss

what youre doing within your practice to introduce

clients to the FRF for SMEs. Make sure staff know

where these tools are as theyre talking to clients.

Intro to FRF for SMEs

PowerPoint

FAQs

Flyer

Short videoBackgrounder

Article for newsletters

Sample letters


37/44


Do you have a client that may benefit from

FRF for SMEs?

Firm: Ask your staff if theyve thought of clients thatmay be interested in this reporting alternative. Who

should they inform?

Identify the clients that you think may benefit from

FRF for SMEs. Owner-managed companies with few or no external

stockholders and dont require GAAP financials

Clients where we have large write-downs

- Can we reduce write-downs in the future by converting these

clients to the framework, eliminating those items that dont

make sense to them?


38/44


39/44


Outreach to Financial Statement Users

Help our clients explain the framework to theirfinancial statement users.

Special toolkit for bankers, surety companies, etc.

- Intro to FRF for SMEs for Financial Statement Users

- PowerPoint- Illustrative financial statements

- Short video

- FAQs

- Flyer


40/44


Benefits to Financial Statement Users

Bankers, surety companies and other users will getinformation that is

Relevant

Reliable

Consistent

FRF for SMES uses traditional accounting principles

and accrual income tax accounting methods -

familiar to most users

FRF for SMEs has undergone public comment and

professional scrutiny


41/44


Outreach to Others

FIRM: Indicate what youve done or are planning

to do to reach out to the community

We can use all these toolkit resources to develop

presentations to the community

Rotary Clubs

Small Business Organizations

Banking conferences

National Assn of Women Business Owners

Others


42/44


Summary

Learn about the framework

Familiarize yourself with the resources

Discuss FRF for SMEs with clients that may benefit

Help clients reach out to their financial statement

users

Inform the business community


43/44


www.aicpa.org/FRF-SMEs

Resources


44/44

Questions?

Documents

Pcps Frf Sme Staff Training