pcps frf sme staff training
TRANSCRIPT
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Financial Reporting Frameworkfor Small- and Medium-Sized Entities
FRF for SMEs Accounting Framework
Name of presenterAudience
Date
Copyright 2013 American Institute of CPAs
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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
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
An Additional non-GAAP Framework
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Private Companies Practice Section
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
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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
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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
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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
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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
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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.
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Advantages of FRF for SMEs
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.
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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.
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Advantages of FRF for SMEs
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
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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
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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
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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
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Private Companies Practice Section
When preparing financialstatements, management
should make an assessment
of whether the going
concern basis of accountingis appropriate
Chapter 2: General Principles
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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.
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Private Companies Practice Section
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
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Private Companies Practice Section
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.
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Private Companies Practice Section
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.
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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FRF for SMEs
U.S. GAAP
Tax basis OCBOA
IFRS for SMEs
Comparisons with other frameworks
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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
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Private Companies Practice Section
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
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Private Companies Practice Section
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]
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Private Companies Practice Section
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.
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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?
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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Private Companies Practice Section
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
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www.aicpa.org/FRF-SMEs
Resources
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Questions?