David Morgan, CPA/PFS, said members of the Tennessee Bankers Association seemed pleased earlier this fall after he gave a presentation about the features of the AICPA’s Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs).

“Once … it was explained to them, that it was a good alternative, they seemed to be very accepting of it,” Morgan said last week during a telephone interview.

Banks, other financial statement users, and small businesses are among the primary targets for education about the FRF for SMEs, Morgan explained during a presentation Monday at the AICPA governing Council meeting.

The framework was launched June 10, and Morgan said AICPA members and state CPA societies have helped spread the word about it. Morgan served as chair of the task force that produced the FRF for SMEs.

The framework was developed for small businesses that are not required to produce GAAP financial statements. It aims to deliver financial statements that provide information that is relevant to users in a simplified, consistent, cost-effective manner.

The CPA profession is fairly well-educated on the FRF for SMEs, Morgan said, so making more banks and small businesses aware of the framework is the next step. The AICPA has performed outreach to national banking associations and banking regulators. Accounting firms and state CPA societies also have spread the word, reaching out to state banking associations and local banks.

The AICPA’s latest ad campaign continues reaching out to bankers, credit unions, and other small business financial statement stakeholders. In addition, the AICPA will educate small businesses through organizations that serve them.

Individual CPAs also can play a role by reaching out to their clients, Morgan said. He said the framework has some early adopters, and he expects use of the FRF for SMEs to grow.

Morgan, a managing partner with Lattimore Black Morgan & Cain in Brentwood, Tenn., said his firm has talked with several clients about the FRF for SMEs, and he expects that some of them will be using it by the end of the year.

“And as time goes on, I think we’ll have more and more clients who switch over, where it’s appropriate,” he said.

PCC Making Progress

As the FRF for SMEs is finding its place in the non-GAAP landscape, the Private Company Council (PCC) is moving toward completing its first exceptions for private companies that use GAAP for their financial reporting.

The PCC has forwarded to FASB for endorsement exceptions for private companies that would:

Allow private companies to choose a simplified hedge accounting approach to their financial reporting when they enter into interest rate swaps to economically convert their variable-rate interest payments to fixed-rate interest payments.

Allow private companies to amortize goodwill acquired in a business combination.



If FASB endorses the exceptions, they will be written into GAAP to provide relief for private companies.

During a Council presentation Monday, PCC Chairman Billy Atkinson said FASB has embraced the PCC process and is paying careful attention to private company needs in creating new standards.

“I expect that to continue,” Atkinson said. “I really think that’s going to be the big benefit from our existence, and from the process that got us into our existence.”

The PCC, which meets next on Nov. 12, also has made progress on creating more GAAP exceptions, including a proposal that would exempt private companies from applying the consolidation guidance for variable-interest entities (VIEs) under common control leasing agreements.

Another proposal would modify the requirement for private companies to allow separate recognition of fewer intangible assets acquired in a business combination.

Other topics Atkinson said the PCC may consider in the future include:

Stock-based compensation.

Disclosures in general for private companies, and their complexity, including pensions and other post-employment benefit disclosures.

More review of VIEs as they apply to private companies.

Cash flow statements.



Atkinson said that it’s natural that there will be some complexity in private company financial statements, particularly when complex transactions occur.

“But to the extent we can draw some lines underneath certain transactions that are pedestrian related to this complexity, we want to try to provide an out,” Atkinson said.

— Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

