Main Street Financial Reporting (Douglas W. Coy Commentary)

by Douglas W. Coy  on Monday, Sep. 16, 2013 12:00 am  

Douglas W. Coy

Two years ago, my friend Stan Kozij wrote in this publication of private company accounting regulations to come. I am happy to share with you that a new Financial Reporting Framework for Small and Medium Size Entities was introduced on June 10 by the American Institute of Certified Public Accountants.

Main Street America has been a focal point of economic discussion for at least six years and perhaps more. While the economic downturn has been devastating to many Wall Street firms and publicly traded companies, the breadth of the lasting impact has been on Main Street. Jobs data is at the core of forecasts and forward-looking economic discussion. Access to capital, whether debt, equity or human capital, has been dramatically limited for many small and medium-sized businesses.

One obstacle in Main Street capital access has been the cumbersome, complicated and sometimes less-than-relevant procedures required for audited statements. Small and medium-sized firms have had to comply with the same standards that much larger private companies are held to. Another obstacle is the often prohibitively high cost of an audit under generally accepted accounting principles. Prior to FRF for SMEs, small and medium-sized entities were limited to GAAP, tax basis or modified cash basis reporting. If business was conducted globally, international financial reporting standards were sometimes required.

Unfortunately, the alternatives to GAAP were generally not good solutions for Main Street. FRF for SMEs is responsive to that solution request. The reporting framework is designed to provide a tailored reporting framework, with recognized and rather traditional accounting methods. Another objective is to provide reports to owners, lenders, insurance providers and other stakeholders needing financial information that might not fit within the GAAP audited framework. It is important to note that FRF for SMEs is not a substitute for GAAP financial statements, but can be much more informative than the alternative methods mentioned above.

FRF for SMEs is intended to be a very relevant and comprehensive framework that can be tailored to fit specific reporting needs and provide that information to the financial statement users. Likely users of the financial framework are small and medium-sized entities of various industries, owner-managed businesses and incorporated, limited liability or other unincorporated businesses. FRF for SMEs will be helpful and informative to those seeking performance-based reporting, wishing to confirm debt and ownership of assets and for interpreting cash flows. It is also anticipated that the statements will provide relevant data to those with direct access to management.

Additional communications in FRF for SMEs will provide for plain-spoken disclosures and a far less complicated reconciliation from company books and records to company tax records. Other characteristics include:

  • Historical cost for asset acquisitions and depreciation, rather than fair-value measurement as required in many GAAP applications
  • Results of operations will not require a comprehensive income analysis.
  • Disclosures are tailored for the user and application.
  • Consolidation with variable interest entities will not be required, and parent-only financial statement reporting is optional.
  • Leases will continue to be reported as required under traditional accounting and U.S. Tax Code.
  • Income tax accounting will include an option of taxes payable or deferred-tax methodologies.

FRF for SMEs is designed to deliver reliable, usable and plain-spoken financial information that will drive business decisions in a much more informed manner and at a significant cost reduction to traditional GAAP presentation.

Should you feel that this reporting framework is suited for your business or desire to discuss it in a more detailed fashion, please contact your CPA firm to discuss or to obtain additional information.

Douglas W. Coy is a CPA with Coy & Co. PLLC of Paragould, an attorney with Douglas W. Coy PA of Little Rock and is the 2013 president of the Arkansas Society of Certified Public Accountants. Email him at DCoy@DWCPA.com.

 

 

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