With recent discussion around accounting alternatives for privately-held companies, many CFOs and their counterparts are considering the cost-benefit of implementing new and emerging reporting standards in their organizations.
It’s widely known that pronouncements under U.S. GAAP are geared toward larger companies and that costs associated with implementing and complying with these can greatly outweigh the benefits to privately held companies. While any change in your financial reporting warrants an in-depth discussion with your accountant, let’s take a look at the two plans currently being discussed in the accounting industry.
AICPA’s Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs)
In June 2013, the AICPA released the FRF for SMEs as an alternative to U.S. Generally Accepted Accounting Principles (GAAP) for privately-held companies. Similar in many respects to U.S. GAAP, the framework has distinct differences including the treatment of comprehensive income, consolidations/subsidiaries, derivatives and several others.
While it included some appealing aspects, it’s believed that the related effort required to issue statements in accordance with FRF for SMEs would closely equate to the effort required to general U.S. GAAP compliant financial statements. With implementation and conversions that would need to be addressed upon adoption, discussions with banks, rewrites and associated feeds with changing debt covenants and verbiage in debt agreements, moving to the FRF for SME framework requires serious consideration.
Financial Accounting Foundation’s Private Company Council (PCC)
In December, RKL clients and team members heard firsthand about an alterative to FRF for SMEs directly from the Financial Accounting Foundation’s appointed chair of the newly formed PCC, Billy Atkinson. The PCC has been tasked with analyzing situations where modifications or exceptions would be granted to privately held companies regarding reporting requirements for certain GAAP related matters. The PCC exceptions would still be considered US GAAP, versus the FRF for SMEs, which is a comprehensive basis of accounting other than U.S. GAAP.
In January, the PCC released updates to U.S. GAAP for privately-held companies on the subsequent accounting for goodwill and for interest rate swaps. The PCC continues to work through several projects and, in time, will likely address the majority of issues brought forth in the FRF for SMEs. In doing so, many believe the inherent value of the FRF for SMEs may be diminished.
Contributed by Hunter Mink, CPA, (firstname.lastname@example.org) a manager in RKL’s Auditing and Accounting Services Group. Hunter helps companies in a variety of industries, including architectural/engineering firms, construction and manufacturing companies and other commercial and not-for-profit entities with their audit and financial reporting needs.