34
1st QUARTER 2014
T
he discussion about
“Big GAAP” vs. “Little
GAAP” has been
going on for decades.
Recently, a non-GAAP
alternative with simplified
rules for privately held entities
called the Financial Report-
ing Framework for Small- and
Medium-Sized Entities (the
FRF for SMEs) was released.
In addition, the Financial
Accounting Standards Board
(FASB) is expected to issue
new rules that will simplify
certain GAAP requirements
and reduce the amount of
disclosure for privately held entities.
The FRF for SMEs was developed as a
cost-effective framework for private enti-
ties; it reduces disclosures that were often
irrelevant to the financial-statement users.
The FRF for SMEs did not define a small-
or medium-sized entity, but it did include
a list of characteristics for an entity that
would consider using it. The FRF for SMEs
describes entities that:
• are owner managed;
• are for-profit;
• do not have contractual or other require-
ments to prepare GAAP financial statements;
• do not operate in a regulated or highly
specialized industry;
• have few complicated transactions;
• do not have significant foreign operations;
• have financial-statement users who are
primarily interested in cash flow, liquidity,
and debt coverage;
• and have key users of financial statements
with direct access to management.
Some of the key attributes of the FRF for
SMEs are:
• historical cost based;
• accrual based;
• disclosures are not excessive and are
targeted to the financial-statement users;
• concise and self-contained;
• provides options to tailor the financial
statements;
• does not require impairment testing for
long-lived assets;
• does not recognize the concept of other
comprehensive income;
• does not recognize the concept of vari-
able interest entities (VIEs);
• does not require recognition of all intan-
gible assets upon a purchase acquisition;
• and requires amortization of goodwill.
The FRF for SMEs can be used now.
However, it is not yet widely accepted, the
biggest obstacle being that banks, bonding
companies, and other third-party users need
to be comfortable with the non-GAAP FRF
for SMEs.
Meanwhile, in 2009, the AICPA, the
Financial Accounting Foundation
(FAF; parent organization of the
FASB), and the National Associa-
tion of State Boards of Accoun-
tancy established a blue-ribbon
panel to address how accounting
standards can best meet the needs
of the users of private-company
financial statements. The panel’s
report called for fundamental
changes to the system of standard
setting, but did not recommend a
separate, self-contained GAAP for
private companies.
As a response to the recommen-
dations of the blue-ribbon panel,
the FAF, in 2012, created the Pri-
vate Company Council (PCC), which has two
principal responsibilities: to review existing
GAAP and propose alternatives to address the
needs of users of private-company financial
statements; and to be the primary advisory
body to the FASB on appropriate treatment
for private entities for new GAAP.
So, is “Little GAAP” finally here? Yes, if
you broaden its definition to include options
for private entities to use a GAAP framework
or a non-GAAP Special Purpose Framework.
In any case, it appears that the accounting
profession is finally beginning to address the
needs of private business entity financial-
statement users.
C
Is Little GAAP Finally Here?
Changes, proposals, and actors addressing private entity financial statements
ELLIOTT A. ROTH, CPA
Partner, EisnerAmper LLP
Learn more about the author
NEAL GODT, CPA
Partner, EisnerAmper LLP
Learn more about the author
Elliott Roth and Neal Godt are both EisnerAmper LLP
Audit Partners with more than 30 years of experience. Roth
has extensive expertise in financial statement presentations
and forensic accounting as well as quality assurance reviews,
litigation support, and valuations of closely held businesses.
He is a frequent speaker and author on accounting and
forensic-related topics. Godt heads the firm’s manufacturing
and distribution practice and provides due diligence, technical
consultation, and internal control support. He is on the corpo-
rate advisory council of Homeless Solutions, Inc.
