100 Introduction - Thomson Reuters...between FRF for SMEs and the cash, modified cash, or tax basis of accounting or converting from those bases. For guidance on the cash, modified

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Accounting, Audit & Corporate Finance Library

Editorial Materials

Accounting and Financial Statements (US GAAP)

Financial Reporting Framework for SMEs

Chapter 1 Introduction and Overview

100 Introduction

100 Introduction

100.1 Preparers and users of financial statements of small- and medium-sized entities generally

agree that the financial reporting needs of those entities are unique. While the notion of generally

accepted accounting principles is appealing, there is considerable frustration with the application of

current authoritative accounting literature—GAAP—to small- and medium-sized entities. Recent

accounting pronouncements have heightened that frustration. Their scope has been broad, without

clearly distinguishing between the plain vanilla transactions of small- and medium-sized entities and

the complex transactions of large entities. In addition, the standards have been written in such a way

that understanding how to apply them to small- and medium-sized entities can be difficult.

100.2 On June 10, 2013, the AICPA issued a new, optional financial reporting framework, referred to

as the Financial Reporting Framework for Small- and Medium-Sized Entities, to provide a GAAP-

alternative for those entities. (The AICPA refers to the new framework as “FRF for SMEs™” while the

authors also refer to it as the “Framework.”) Although this new simplified Framework provides

another tool in the CPA's arsenal for meeting the needs of small- and medium-sized clients and their

financial statement users, like most things new, it may take time to achieve acceptance. The

Framework has been somewhat controversial since its release, with some welcoming it while others

warn against it. This Guide is intended to familiarize practitioners with the new Framework so that

they can provide appropriate information to their clients to make decisions about whether to

implement it. If the decision to implement is made, this Guide provides detailed guidance on

converting from GAAP to the FRF for SMEs.

100.3 This Chapter provides an introduction to and overview of the new Framework, discusses the

conversion process, and outlines the steps in the implementation process. The remainder of this

Guide provides a detailed discussion of differences between the FRF for SMEs and traditional U.S.

GAAP, along with related conversion guidance and examples, by financial statement area. The

authors assume that users of this Guide are familiar with GAAP. Therefore, financial statement areas

for which the FRF for SMEs is the same as GAAP are not addressed. For guidance on traditional

GAAP in those areas, users can refer to PPC's Guide to Preparing Financial Statements or PPC's

Guide to GAAP.

100.4 In addition, the authors believe converting from the cash, modified cash, or tax basis of



accounting to the FRF for SMEs will not be common because, if financial statement users already

accept statements prepared on a comprehensive basis of accounting other than GAAP, then

converting to the new Framework is not likely to be beneficial and may be more costly. For example,

an entity converting from the tax basis of accounting would be required to keep two sets of books—

one for tax and another for financial reporting. Therefore, this Guide does not address differences

between FRF for SMEs and the cash, modified cash, or tax basis of accounting or converting from

those bases. For guidance on the cash, modified cash, and tax bases of accounting, users can refer

to PPC's Guide to Cash, Tax, and Other Bases of Accounting.

© 2014 Thomson Reuters/PPC. All rights reserved.



END OF DOCUMENT -

© 2014 Thomson Reuters/Tax & Accounting. All Rights Reserved.



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Editorial Materials




101 Background of the FRF for SMEs

101 Background of the FRF for SMEs

101.1 There are two ways for preparers and users of financial statements of small- and medium-

sized entities to address the frustrations involved in applying GAAP. One is for the authoritative

accounting literature to be changed so it can be applied differently depending on the needs of those

entities, which was recommended by the Blue-Ribbon Panel on Standard Setting for Private

Companies in January 2011. Another is for the entity to prepare its financial statements using an

accounting framework other than GAAP .

101.2 Activity is currently underway on both fronts. The Private Company Council is working with the

Financial Accounting Standards Board (FASB) to develop exceptions and modifications to existing

GAAP where needed to address the needs of private company financial statement users. Then, the

AICPA has developed its new, optional reporting framework that provides another GAAP-alternative

for small- and medium-sized entities. This section provides an overview of that activity, including the

following:

• Activities of the Private Company Council.

• Development of the FRF for SMEs.

• Initial reaction to the FRF for SMEs.

Activities of the Private Company Council

101.3 In May 2012, the Financial Accounting Foundation (FAF), which oversees FASB, established

the Private Company Council (PCC). The PCC was asked to determine whether exceptions or

modifications to existing GAAP are needed to address the needs of private company financial

1



statement users and to function as the primary advisory body to the FASB as they consider

modifications of existing projects for private company concerns.

101.4 Through April 2014, the FASB released for public comment the following four alternatives within

U.S. GAAP proposed by the PCC to address concerns of private company stakeholders:

• Proposed Accounting Standards Update, Intangibles—Goodwill and Other (Topic 350):

Accounting for Goodwill (a proposal of the Private Company Council). This proposal would allow

private companies to amortize goodwill over a period of time not to exceed 10 years and provide

a more simplified goodwill impairment model, instead of requiring an annual assessment of

whether goodwill has been impaired.

• Proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Accounting for

Certain Receive-Variable Pay-Fixed Interest Rate Swaps (a proposal of the Private Company

Council). This proposal would allow private companies to use a simpler approach to accounting

for receive-variable, pay-fixed interest rate swaps, often referred to as plain vanilla interest rate

swaps.

• Proposed Accounting Standards Update, Consolidation (Topic 810): Applying Variable Interest

Entity Guidance to Common Control Leasing Arrangements (a proposal of the Private Company

Council). This proposal would permit a private company to elect not to apply variable interest

entity guidance for assessing whether it should consolidate a lessor entity when certain criteria

are met.

• Proposed Accounting Standards Update, Business Combinations (Topic 805): Accounting for

Identifiable Intangible Assets in a Business Combination (a proposal of the Private Company

Council). This proposal would allow private companies to not separately recognize certain

intangible assets (such as customer relationship intangibles) acquired in a business

combination.

101.5 In the first quarter of 2014, the first three proposed ASUs discussed in the preceding paragraph

were issued as final ASUs:

• ASU 2014-02, Accounting for Goodwill, provides an accounting alternative for goodwill by

allowing nonpublic entities to elect to amortize goodwill using straight-line amortization over 10

years or less than 10 years if the entity determines that a shorter period is more appropriate.

This accounting alternative, if elected, should be applied prospectively to goodwill existing as of

the beginning of the period of adoption and new goodwill recognized in annual periods beginning

after December 15, 2014. However, early application is permitted, including application to any



period for which the entity's annual or interim financial statements have not yet been made

available for issuance.

• ASU 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—

Simplified Hedge Accounting Approach, provides a simplified hedge accounting approach for

private companies that enter into certain plain vanilla interest rate swaps solely to convert

variable-rate debt to a fixed rate. The ASU allows these swaps to be measured at settlement

value rather than fair value, and the hedge documentation can be completed up to the date that

the first annual financial statements are available to be issued. ASU 2014-03 is effective for

annual periods beginning after December 15, 2014, with early adoption permitted.

• ASU 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing

Arrangements, provides an option for a private company lessee to elect to not apply the VIE

guidance in GAAP to a lessor entity if certain criteria are met. In that case, the reporting entity

would not have to consolidate the lessor entity. This alternative is effective for annual periods

beginning after December 15, 2014, with early adoption permitted.

Development of the FRF for SMEs

101.6 The notion of financial reporting frameworks other than GAAP is certainly not new, but their use

by small- and medium-sized entities has increased dramatically. That likely is in response to

frustration with changes in GAAP. GAAP is designed to account for transactions according to their

economic substance. The three other financial reporting frameworks used most often by small- and

medium-sized entities—the income tax basis, the pure cash basis, and the modified cash basis—

have different objectives.

a. The income tax basis is designed to account for transactions according to positions taken for

filing with taxing authorities, which are not always designed to account for their economic

substance. For example, rather than depreciating the cost of equipment over its estimated

useful life in a systematic and rational manner, depreciation may be accelerated under

economic incentives such as bonus depreciation and expanded Section 179 deductions. The tax

basis of accounting is useful for entities whose financial statement users are interested primarily

in the tax aspects of their relationship with the entity, for example, investors in tax-driven

partnerships.

b. The pure cash basis is designed to account for transactions based only on when they affect

cash. The pure cash basis of accounting may be appropriate when the entity is interested

primarily in understanding cash flow, has a limited number of financial statement users, relatively



simple operations engaged in one primary activity, and insignificant amounts of debt, fixed

assets, or other items that would be recognized under the accrual basis. Examples of typical

entities using this method include estates, trusts, political and civic organizations, and

professional service entities.

c. Even though modifications of the pure cash basis are made to conform to GAAP, the modified

cash basis is designed primarily to account for transactions according to when they affect cash.

101.7 In an effort to propose a solution to the issue of differing objectives, the AICPA decided to

provide small- and medium-sized entities another alternative to GAAP. On June 10, 2013, the AICPA

released its Financial Reporting Framework for Small- and Medium-Sized Entities. A stated objective

of the Framework is to account for transactions according to their economic substance, the same

objective as GAAP.

101.8 The AICPA's new Framework is different from the actions being taken by the PCC, as the

PCC's efforts, as approved by the FASB, actually amend GAAP. The FRF for SMEs is another

alternative when GAAP is not required, but it does not modify existing GAAP.

Reaction to the FRF for SMEs

101.9 The new Framework has been met with mixed reactions. In fact, some constituents have been

highly critical of the new Framework. Several of the 76 comment letters that the AICPA received on

the exposure draft of the FRF for SMEs expressed dissatisfaction with the process and/or the result

of the AICPA's efforts. Many respondents to the Exposure Draft expressed their support for GAAP

financial statements, especially given the progress the PCC is making to modify GAAP for private

companies. Other critics of the Framework have voiced concern that another special purpose

framework will only add confusion to the marketplace due to the number of options available. In

addition, the Institute of Management Accountants expressed concerns about the use of the new

Framework, and FAF clarified its May 2012 support of the Framework project to make it clear that it

has not taken a position on the substance of the Framework and now has concerns about the

possibility that some may confuse the Framework with GAAP.

101.10 In the fall of 2013, the Tax & Accounting business of Thomson Reuters conducted a survey

about the new Framework. Forty-six percent of the 213 respondents to the survey were familiar with

the Framework. Those who were familiar with the Framework were asked what they expect the

biggest challenge to be for acceptance of the Framework. Forty percent believe that acceptance by

lenders will be the biggest challenge, while 31% think it will be acceptance and understanding by the

firm, and 29% believe it will be acceptance by clients. Finally, 56% of respondents said they expect

that one or more of their clients will consider using the FRF for SMEs, 10% said they do not expect

their clients to use the Framework, and 34% were unsure.

101.11 While there have been a number of critics, many practitioners who deal with the challenges of



complexity on a daily basis have expressed support for the new Framework and have applauded the

AICPA's efforts to provide a more comprehensive alternative to GAAP. The authors have spoken with

a number of practitioners who intend to further evaluate using the new Framework. This Guide is

intended for those practitioners.

GAAP encompasses U.S. GAAP, International Financial Reporting Standards (IFRS), and IFRS

for SMEs. IFRS for SMEs was developed by the International Accounting Standards Board as a

simplified, cost-effective financial reporting framework for small- and medium-sized entities that is

more targeted and less prescriptive than IFRS. IFRS for SMEs is outside the scope of this Guide.


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102 Overview of the FRF for SMEs

102 Overview of the FRF for SMEs

102.1 So what exactly is this new Framework? The AICPA explains that the FRF for SMEs is a self-

contained framework that was created to “help owner-managed businesses provide relevant,

streamlined reporting for users of their financial statements.” As with GAAP, historical cost is the

primary measurement basis. However, while recurring and nonrecurring adjustments for unrealized

changes in value are required in certain circumstances, those circumstances are more limited than

the circumstances requiring adjustments in GAAP. There are also several similarities to the accrual

income tax basis. For some accounting policies, the Framework allows alternatives so that small-

and medium-sized entities can select the policy they believe best meets the needs of the users of

their financial statements.

102.2 The Framework is also more principles based, so entities using the Framework should expect

to encounter situations where professional judgment is necessary to select among measurement or

disclosure alternatives. Generally, the Framework was developed to address transactions typically

encountered by private, for-profit, small- and medium-sized entities. If a transaction, or other

condition or event is not addressed in the Framework, then professional judgment needs to be used

to apply the general principles, concepts, and criteria contained in the Framework. As a result, two

entities that enter into the same transaction may choose to measure or disclose the transaction

differently depending on their judgment, and both treatments may be considered appropriate for the

transaction. The Framework does not include industry-specific guidance.

102.3 Practitioners have historically requested that more specific guidelines and examples be

included in the accounting literature, so a framework that is more principles based will require a

change in mindset as practitioners encounter issues and transactions that are not specifically

addressed in the Framework. To assist with that issue, the Framework includes guidance on

applying its principles and concepts. The entity's development and application of accounting policies

should result in financial information that is consistent with the financial statement concepts

described in Chapter 1 of the FRF for SMEs. That guidance is discussed in Chapter 2 of this Guide.

102.4 This section provides an overview of the FRF for SMEs, including the following:



• Structure and content of the FRF for SMEs.

• Definition of an SME.

• Key differences from GAAP.

• Presentation and disclosure requirements.

• Frequency of making changes to the Framework.

Structure and Content of the FRF for SMEs

102.5 The FRF for SMEs is a 206-page document that outlines the principles and specific

requirements for applying the Framework. It is divided into 31 chapters and a glossary. The first three

chapters address general requirements and principles, including transition guidance. Subsequent

chapters provide guidance on specific financial statement elements. Chapter topics, which are

somewhat similar to the Financial Accounting Standards Codification, are listed in Exhibit 1-1.

Exhibit 1-1

Contents of the FRF for SMEs

• Chapter 1: Financial Statement Concepts

• Chapter 2: General Principles of Financial Statement Presentation and Accounting Policies

• Chapter 3: Transition

• Chapter 4: Statement of Financial Position

• Chapter 5: Current Assets and Current Liabilities



• Chapter 6: Special Accounting Considerations for Certain Financial Assets and Liabilities

• Chapter 7: Statement of Operations

• Chapter 8: Statement of Cash Flows

• Chapter 9: Accounting Changes, Changes in Accounting Estimates, and Correction of Errors

• Chapter 10: Risks and Uncertainties

• Chapter 11: Equity, Debt, and Other Investments

• Chapter 12: Inventories

• Chapter 13: Intangible Assets

• Chapter 14: Property, Plant, and Equipment

• Chapter 15: Disposal of Long-Lived Assets and Discontinued Operations

• Chapter 16: Commitments

• Chapter 17: Contingencies



• Chapter 18: Equity

• Chapter 19: Revenue

• Chapter 20: Retirement and Other Postemployment Benefits

• Chapter 21: Income Taxes

• Chapter 22: Subsidiaries

• Chapter 23: Consolidated Financial Statements and Noncontrolling Interests

• Chapter 24: Interests in Joint Ventures

• Chapter 25: Leases

• Chapter 26: Related Party Transactions

• Chapter 27: Subsequent Events

• Chapter 28: Business Combinations

• Chapter 29: New Basis (Push-Down) Accounting

• Chapter 30: Nonmonetary Transactions



• Chapter 31: Foreign Currency Translation

• Glossary

____________________

102.6 Chapters within the Framework are further divided into subtopics, with guidance on purpose

and scope, recognition, measurement, and disclosure. This Guide provides references to specific

chapters and paragraphs within the Framework using the format “FRF SME #.##.” For those

customers that also purchase access to the Framework on Checkpoint, links exist between this

Guide and the Framework.

What Is the Definition of an SME?

102.7 An entity may choose whether to adopt the Framework. When evaluating that option, the entity

might question whether it meets the definition of an SME. However, the Framework does not define a

small- and medium-sized entity, and there are no size thresholds to meet for an entity to be an SME.

The Framework indicates that an entity may be incorporated or unincorporated, and it should also be

a going concern. Exhibit 1-2 provides some other characteristics included in the Framework of

entities that would be considered SMEs, although this list is not all-inclusive and the criteria are not

required to be met.

Exhibit 1-2

Characteristics of Small- and Medium-Sized Entities

• The entity is not required to prepare GAAP-based financial statements.

• The entity has no plans to go public in the foreseeable future.

• The entity is a for-profit entity.

• The owner(s) of the entity is (are) also the person(s) who runs the entity.

• There is no highly-specialized accounting guidance for the industry in which the entity operates.



(For example, financial institutions and governments have highly-specialized accounting

guidance and would not meet that criterion.)

• There are no overly complicated transactions.

• There are no significant foreign operations.

• The financial statement users have direct access to management.

• The financial statement users are normally interested in the entity's cash flows, liquidity,

interest coverage, and balance sheet strength.

____________________

102.8 It is important to note that not all of these criteria are required to be met for an entity to choose

to use the Framework. For example, some not-for-profit entities may choose to adopt the FRF for

SMEs even though the criteria say that the entity should be a for-profit entity. However, specific

guidance for not-for-profit entities is not included in the FRF for SMEs. The authors believe there may

be some not-for-profit entities that could use the FRF for SMEs. For example, not-for-profit entities

that are not impacted by specialized accounting guidance on contributions and net asset

classifications may find this to be an appropriate framework. That could include organizations such

as country clubs or trade associations. Nevertheless, the authors believe state regulatory agencies

and watchdog groups are not likely to be familiar with the FRF for SMEs and would likely not accept

financial statements of not-for-profit entities prepared using the FRF for SMEs.

What Are the Key Differences From GAAP?

102.9 Much of the guidance in the FRF for SMEs is very similar to the requirements contained in

GAAP. However, there are several important differences that may make it easier to prepare financial

statements using the new Framework. For example, the differences in the requirements for

recognizing changes in fair value is expected to be one of the most significant cost-saving features of

the Framework, as fair value estimates are often time-consuming and costly to prepare. The table in

Exhibit 1-3 presents the differences between GAAP and the FRF for SMEs that the authors consider

to be most significant. Those differences are discussed in detail in subsequent chapters of this

Guide.

Exhibit 1-3



Significant Differences between GAAP and the FRF for SMEs

Accounting Area FRF for SMEs Treatment GAAP Treatment

Accounting for income taxes Entities subject to income taxes

are allowed to elect whether to

use the taxes payable method

or the deferred income taxes

method. The taxes payable

method only recognizes current

income tax assets and liabilities

(i.e., the amount that would be

payable or receivable as

reflected on the income tax

return). Uncertainty in income

taxes cannot be considered in

accounting for income taxes.

The deferred income tax method

must be used, and uncertainty in

income taxes must be

considered in accounting for

income taxes.

Accounting for intangible

assets acquired in a business

combination

Entities may choose whether

they will separately recognize

identifiable intangible assets or

not separately recognize them

but rather account for them as

goodwill.

Identifiable intangible assets

acquired in a business

combination must be separately

recognized at the acquisition

date.

Amortization of goodwill Entities are required to

amortize goodwill over a period

consistent with that used for

federal income tax purposes,

or over a period of 15 years if

goodwill is not amortized for

federal income tax purposes.

After the issuance of ASU 2014-

02, Accounting for Goodwill,

entities may elect to amortize

goodwill over a period of up to

10 years, or use the existing

method of not amortizing but

instead assessing for impairment

on an annual basis, although the

assessment may be qualitative.

Reporting of subsidiaries A parent entity may choose

whether to consolidate or use

the equity method to account

for its subsidiaries. However,

the same method of reporting

must be applied to all

subsidiaries. That guidance

essentially allows parent-only

financial statements.

All subsidiaries must be

consolidated if the parent

exhibits control over the entities.

GAAP allows parent-only

financial statements to be

presented only when the entity

also presents related

consolidated financial

statements.

Accounting for and reporting

of variable interest entities

(VIEs)

The concept of VIEs is not

included. Therefore, a

reporting entity that is the

A reporting entity that is the

primary beneficiary of a VIE is

required to consolidate the VIE,



primary beneficiary of a VIE is

not required or allowed to

consolidate the VIE.

unless the criteria under ASU

2014-07 are met and that

guidance is applied.

Accounting for leases Accounting for leases by both

lessees and lessors is similar

to how an entity would account

for its leases for tax purposes.

Basically, the Framework

provides that if a lease

transfers substantially all of the

benefits and risks of ownership

to the lessee, the lease is a

capital lease; if not, it is an

operating lease.

More stringent tests are required

to determine the proper

classification of a lease.

Accounting for stock-based

compensation

Compensation expense should

not be recognized when stock

is issued to employees in lieu

of cash compensation, but

certain disclosures are

required.

Compensation expense should

be recognized at the grant-date

fair value of the securities, less

any amount paid or to be paid by

the employee, and certain

disclosures are also required.

Accounting for defined benefit

plans

Entities with defined benefit

plans are allowed to elect

whether to use the current

contributions payable method

or one of the accrued benefit

obligation methods. The

current contributions payable

method would only reflect

expense for the current year's

contribution.

The net periodic pension cost,

comprised of several different

components, is required to be

recognized each year with the

overfunded or underfunded

status of the plan being

recognized on the balance

sheet.

Impairment of assets A reduction of the carrying

amount of inventories for

impairment is required, if

applicable. However, the need

to adjust the carrying amounts

of other assets for subsequent

impairment is not addressed. It

is, therefore, not clear whether

the need for those adjustments

should be considered. (As an

observation, the exposure draft

of the FRF for SMEs required

impairment adjustments that

were generally the same as

those required by GAAP.)

Impairment adjustments are

required for loans and accounts

receivable, inventories, and

intangible and other long-lived

assets.



Recurring adjustments for

changes in the value of debt

and equity investments

Recurring adjustments are

required of the carrying

amount of debt and equity

investments that management

is currently attempting to sell

for changes in their market

value. Those changes in

market value during each

period are recognized in net

income. If the securities are not

held for sale, they are

recorded at historical cost.

Recurring adjustments are

required of the carrying amount

of marketable debt and equity

securities for changes in their

fair value. Changes in fair value

for marketable securities

classified as available for sale

are reported in other

comprehensive income rather

than net income.

____________________

Presentation and Disclosure

102.10 The FRF for SMEs is a fair presentation framework. That means the financial statements,

including the notes to the financial statements and any supporting schedules, should include all of the

information necessary for a fair presentation of the financial position, results of operations, and cash

flows of the entity in accordance with the Framework. Fair presentation involves faithfully

representing the substance of transactions and other events underlying the financial statements.

102.11 The following are done to achieve fair presentation in accordance with the Framework:

• Apply the Framework.

• Exercise professional judgment to provide sufficient information about transactions or events

affecting the entity's financial position, results of operations, and cash flows for the periods

presented that are of a size, nature, and incidence that disclosure is necessary to understand

their effects.

• Provide information that is clear and understandable.

The following paragraphs discuss the general requirements for presentation and disclosure under the

Framework. A disclosure checklist is provided at Appendix 4A.

102.12 Presentation

Both GAAP and the new Framework state that financial statements normally include a statement of

2

3



financial position, a statement of operations, a statement of changes in equity, and a statement of

cash flows, although the titles of the statements may be slightly different. For example, the statement

of financial position may be titled the statement of assets, liabilities, and equity, and the statement of

operations may be titled the statement of revenue and expenses. It is acceptable to present an

individual financial statement, but if a statement of financial position and statement of operations are

presented, then a statement of cash flows must also be presented. However, a difference is that

GAAP also includes a statement of comprehensive income, when applicable, and the new

Framework does not include the concept of comprehensive income.

102.13 Financial statements may be presented on a comparative basis. However, comparative

information may not be meaningful in certain circumstances, such as when the entity's financial

structure has changed significantly or when assets and liabilities have been revalued following a

business combination to establish a new cost basis.

102.14 Much like GAAP, the classification of items in the financial statements should enhance their

understandability. If the classification of an item in current period financial statements differs from its

classification in prior periods, for example, as a result of a change in the allocation or grouping of

items within or among categories, the item should be reclassified in the financial statements of the

prior period to conform to the new presentation. Such a change in classification is a matter of

presentation and is not by itself a change in accounting policy. Items not significant by themselves

may be grouped with other items closest to their nature.

102.15 Disclosure

Notes to financial statements, and supporting schedules to which the financial statements are cross-

referenced, are used to clarify or further explain the items in the financial statements. The FRF for

SMEs indicates that information in the financial statements should clearly convey the nature, extent,

and significant terms and conditions of the related transactions or events, as well as their financial

effects on the periods presented. The terminology used should be easily understandable. Generally,

disclosures required by the Framework are streamlined to avoid excess detail, complexity, and

irrelevant information.

102.16 Notes and supporting schedules cross-referenced to the financial statements have the same

significance as information or explanations set out directly in the body of the financial statements. As

with GAAP, they are considered an integral part of the financial statements. The information

conveyed by every note or supporting schedule should be consistent with the accounting treatment

given to the specific item to which it relates. However, disclosure is not an appropriate substitute for

proper accounting treatment.

102.17 Practitioners often cite disclosure overload as a major contributing factor to the complexity of

preparing financial statements. Many of the disclosures required by traditional GAAP are not

considered by some to be relevant to users of the financial statements of small- and medium-sized

entities. They believe the disclosures for those entities need to be more targeted based on the

presumption that financial statement users are familiar with and knowledgeable of the entity and have

3

4



direct access to management. Therefore, financial statement disclosures serve primarily to confirm

and supplement users' existing knowledge and expectations about the business.

102.18 Although disclosure requirements under the FRF for SMEs are significantly less than

disclosure requirements in traditional GAAP, this reduction in disclosures is not due to an arbitrary

elimination of disclosure requirements by the developers of the FRF for SMEs. Rather, it stems

primarily from the simplified accounting provided in the Framework. For example, because the

Framework does not include the concept of VIEs, there are no specific disclosure requirements

related to those entities. However, some disclosure may still be necessary to achieve fair

presentation under the Framework and meet user needs. As previously stated, an overriding principle

of the FRF for SMEs is that financial statements should include all of the information necessary to

achieve fair presentation under the Framework. Absent specific disclosure requirements, the

accountant uses professional judgment to determine the extent of information that is necessary. In

many cases, the authors believe that information can be provided by describing significant

transactions in narrative form.

102.19 The Framework discusses throughout the document the most important disclosures that are

needed by financial statement users of small- and medium-sized entities. If practitioners are

reporting on financial statements prepared in accordance with this new Framework, the compilation,

review, and auditing literature provides further guidance on the adequacy of disclosures needed in

special purpose framework financial statements. That literature requires disclosure of the differences

between the special purpose framework and GAAP. That literature also requires that when special

purpose financial statements include items that are the same as or similar to those in financial

statements prepared under GAAP, the practitioner should evaluate whether the special purpose

financial statements include informative disclosures similar to those required by GAAP. Also, the

auditing literature requires the auditor to evaluate whether additional disclosures, beyond those

specifically required by the framework, that are related to matters not specifically identified on the

face of the financial statements, or other disclosures, are necessary for the financial statements to

achieve fair presentation. This topic is discussed in greater depth in chapter 4.

102.20 Disclosing Differences from GAAP.

The Framework requires the notes to the financial statements to prominently state the basis of

accounting used to prepare the financial statements. It also notes that entities may want to describe

in the notes how the basis differs from GAAP since some reporting standards (such as AU-C 800)

require practitioners to evaluate whether the disclosures adequately describe those differences. The

Framework provides further guidance on the tailoring of those disclosures if the differences are

described.

102.21 Since the compilation, review, and auditing literature all require disclosure of the differences

between the special purpose framework and GAAP, the authors believe the wording used in the new

Framework could create confusion among practitioners about what is required to be disclosed.

Accordingly, practitioners who are reporting on financial statements prepared under the new

Framework should ensure that those statements adequately disclose the differences from GAAP.

5



How Frequently Will Changes Be Made to the Framework?

102.22 One of the difficulties in using GAAP is staying current with the changes the FASB makes to

the FASB Codification through Accounting Standards Updates (ASUs). For example, in 2013 the

FASB issued 12 ASUs. The AICPA's plan is to have fewer, less frequent updates of the Framework.

The AICPA may provide revisions to address input received during the implementation of the

Framework. After that time, their plan is to make updates/revisions every three to four years. That

planned schedule will make it easier on small and medium-sized entities and their accountants and

auditors to keep up with changes.

The FRF for SMEs uses the term market value rather than the term fair value that is used in

GAAP. Although the definitions of the two terms might appear to be very similar, the authors believe

entities are not required to use the guidelines for measuring fair value found in FASB ASC 820-10

when determining the market value of investments held for sale. See Chapter 3 for further

discussion.

Changes in equity may be disclosed in the notes to the financial statements or as part of another

financial statement.

Judgment is required when selecting specific financial statement titles. The guidance in AU-C

800.15 and .A17 indicates that titles of OCBOA financial statements should differ from those for

similar statements prepared in accordance with GAAP so that there is no implication that the

statements are presented in conformity with GAAP. Accordingly, the authors believe that financial

statements prepared under the new Framework should not use GAAP titles to avoid confusing users

of the financial statements about the basis on which they are prepared. See further details in Chapter

4.

Depending on the industry, other users may request additional information to be included as part

of the basic financial statements or as supplementary information. For example, bonding agencies

may request a schedule of contracts in progress.


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Editorial Materials




103 Converting to FRF for SMEs

103 Converting to FRF for SMEs

103.1 Small- and medium-sized entities can choose to adopt the Framework at any time now that it

has been released; that is, there is no effective date. However, several issues need to be considered

before making the decision to convert. Once a decision has been made to convert to the FRF for

SMEs, the remaining steps in the conversion process include the following:

• Deciding when to convert.

• Performing the conversion.

The remainder of this section discusses the issues the authors believe are most important when

deciding whether to convert, and the process of transitioning to the new Framework once a

conversion decision is made. Section 104 discusses other steps in the implementation process,

including training staff and educating and informing clients and financial statement users.

Deciding Whether to Convert

103.2 The AICPA has no authority to prevent or require the use of a special purpose framework, such

as the FRF for SMEs. Thus, its use is entirely optional. Ultimately, the decision about whether to

convert to the FRF for SMEs in the preparation of financial statements rests with management.

Making that decision primarily involves consideration of the following matters:

• Whether financial statement users will accept financial statements prepared under the new

Framework.

• Whether the entity is a viable candidate for conversion.



103.3 Acceptance of the Framework by Financial Statement Users

The financial statements of small- and medium-sized entities are typically used in the following ways:

• Management and owners of the entity use the financial statements to confirm their

understanding of the entity's performance, its cash flows, and what the entity owns and owes.

• External users of the entity's financial statements generally focus their attention on cash flows,

liquidity, statement of financial position strength, and interest coverage.

• The entity's financial statements are often used to support an application for bank financing

when the banker does not rely solely on the financial statements to make the lending decision.

He or she also considers available collateral or makes other evaluations outside the financial

statements.

103.4 The biggest question that currently looms over the Framework is whether financial statements

prepared under the Framework will be accepted by financial statement users, primarily banks and

other financing sources. The Framework is not intended to be a substitute for GAAP when users

require GAAP-based financial statements. For example, many banks have historically included

provisions in loan covenants requiring entities to provide financial statements prepared in accordance

with GAAP, so many small- and medium-sized entities had no choice. For those entities to be in a

position to consider adopting the FRF for SMEs, their banks must be willing to accept financial

statements prepared on that basis. For some entities, the financial statement users include others in

addition to bankers, such as sureties for some construction contractors. Thus, consideration of

whether financial statement users will accept financial statements prepared under the new

Framework is of paramount importance. That determination needs to be made before significant

effort is spent on the conversion process. Practitioners may consider the following questions:

• Do legal or regulatory reporting requirements mandate the use of GAAP-based financial

statements?

• Do loan covenants or other agreements currently allow for financial statements prepared on a

basis of accounting other than GAAP or can they be amended to allow that alternative?

• Are the financial statements currently prepared on an OCBOA (such as the tax basis) and



would the Framework better meet the needs of the users?

• Are topics contained in GAAP and omitted from the Framework, such as fair value accounting,

deferred income tax accounting, or other comprehensive income, particularly relevant to the

entity and its financial statement users?

Section 104 discusses steps that might be taken to inform or educate financial statement users

about the new Framework as part of gaining acceptance.

103.5 Identifying Candidates for Conversion

Assuming financial statement users would accept or permit financial statements prepared on a basis

of accounting other than GAAP, another important consideration when making the decision to convert

is whether the entity is a viable candidate for conversion. The Framework may be appropriate for

small- and medium-sized entities in many industry groups and may be used by unincorporated, as

well as incorporated, entities. The Framework should be used only by an entity that is a going

concern.

103.6 Developers of the Framework intentionally did not provide quantified size criteria for

determining what constitutes a small- and medium-sized entity. They concluded that a quantified size

test was not feasible and not an effective way of describing the kinds of entities for which the

Framework is intended. Although the Framework does not define an SME, it outlines certain

characteristics of those entities. Paragraph 102.7 discusses the characteristics of small- and

medium-sized entities considered potential candidates for conversion. As stated previously, those

characteristics are not all-inclusive and not presented as a list of required characteristics. Exhibit 1-4

provides a decision tree based on those characteristics that may be helpful when deciding whether

the entity is a potential conversion candidate.

Exhibit 1-4

Decision Tree for Identifying Candidates for Conversion to FRF for SMEs

6



____________________

Deciding When to Convert

103.7 Because the Framework is not authoritative, it has not been acted upon, approved, or

disapproved by any senior technical committee of the AICPA or FASB. As such, it has no effective

date and the AICPA cannot mandate its use. But, as previously mentioned, small- and medium-sized

entities can choose to adopt it at any time now that it has been released. In addition, accountants and



auditors can report on compiled, reviewed, or audited financial statements prepared using the

Framework since it meets the criteria found in AU-C 800 Special Considerations—Audits of Financial

Statements Prepared in Accordance With Special Purpose Frameworks, and AR 60 Framework for

Performing and Reporting on Compilation and Review Engagements, for a special purpose

framework.

103.8 Deciding when to convert involves choosing a date of transition. The Framework defines the

date of transition to the FRF for SMEs accounting framework as the “beginning of the earliest period

for which an entity presents financial statements under the FRF for SMEs accounting framework.”

The Framework does not prohibit the earliest period presented from being a prior period. For

example, as of December 31, 2013, an entity decides to convert to the FRF for SMEs. The entity may

choose January 1, 2012 as the date of transition to the Framework so that a complete set of

comparative financial statements can be presented under the Framework. However, the Framework

also does not prohibit presenting financial statements for only the current year. Thus, the entity could

select January 1, 2013, as the date of transition and present only single period financial statements

under the Framework. Therefore, the selection of a transition date includes consideration of whether

the entity desires to present comparative or only single period financial statements.

103.9 The Framework (FRF SME 3.01) indicates that financial statements should contain

comparable information for all periods presented. Therefore, it is not appropriate to present financial

statements under the Framework in comparative form with prior period financial statements prepared

under GAAP or another basis of accounting.

Performing the Conversion

103.10 After the decision has been made to convert and a transition date selected as discussed in

the previous paragraphs, the following steps are performed to make the conversion:

a. Establish accounting policies to be used under the Framework.

b. Prepare the opening statement of financial position.

c. Prepare and present financial statements under the Framework, including appropriate

transition disclosures.

Comprehensive conversion illustrations are included at Appendix 5A and Appendix 5B.

103.11 Accounting Policies

An entity selects accounting policies to be used in preparing its opening statement of financial

position and throughout all periods presented in its first set of financial statements under the



Framework. An entity's accounting policies under the Framework may differ from its previous

accounting policies. For example, an entity may use the taxes payable method of accounting for

income taxes rather than the deferred income taxes method. Any resulting adjustments are reflected

directly in equity at the date of transition (that is, beginning equity).

103.12 An entity is permitted to apply certain exemptions from the Framework when preparing its

opening statement of financial position. To the extent those exemptions are applied, the accounting

policies used in the beginning statement of financial position will differ from the accounting policies in

effect at the end of the year of transition. In addition, an entity is prohibited from applying certain

aspects of the Framework retrospectively in its beginning statement of financial position. Those

exemptions and prohibitions are discussed in the following paragraphs.

103.13 Opening Statement of Financial Position

An entity converting to the FRF for SMEs prepares its opening statement of financial position as of

the date of transition. That is the starting point for subsequent accounting under the Framework.

However, see the discussion in paragraph 501.2 on other ways to determine the opening balances

under the Framework. In its opening statement of financial position, an entity should—

• recognize all assets and liabilities that are required to be recognized by the Framework;

• not recognize any assets or liabilities that are not permitted by the Framework;

• reclassify items previously recognized as one type of asset, liability, or component of equity if

the Framework requires them to be recognized as a different type of asset, liability, or

component of equity; and

• apply the Framework's measurement criteria to all recognized assets and liabilities.

103.14 Although generally the Framework is applied to all assets and liabilities in the opening

statement of financial position as indicated in the preceding paragraph, certain exemptions are

permitted. Exemptions from the Framework are permitted in the opening statement of financial

position related to the following:

• Business combinations.

• Financial assets and liabilities.



• Asset retirement obligations.

In addition, the Framework prohibits retrospective application of certain accounting policies in the

opening statement of financial position. Those exemptions and prohibitions are discussed in the

following paragraphs.

103.15 Business Combinations Exemption.

With respect to business combinations, the entity may elect not to restate business combinations

that occurred before the date of transition. However, if any business combinations are restated, then

all subsequent business combinations should also be restated to conform with the Framework, and

the entity should apply the Framework's requirements for consolidations and noncontrolling interests

as of the date of the earliest restated combination. In any case, all business combinations occurring

after the date of transition should be accounted for under the Framework. If an entity chooses not to

restate a prior business combination, that combination is reflected as follows in the opening

statement of financial position:

• The entity carries forward its balances related to that prior business combination, except that

an entity may not include in its opening statement of financial position any item that does not

qualify for recognition as an asset or liability under the Framework. Any resulting change is

accounted for as an adjustment to beginning equity or by reclassifying a previously recognized

intangible asset to goodwill.

• Notwithstanding the decision not to restate, the entity may derecognize certain financial assets

and liabilities as discussed in paragraph 103.18. Any resulting change is accounted for as an

adjustment to beginning equity or by recognizing as an intangible asset an amount previously

included in goodwill.

• If an item not recognized as an asset or liability under the previous basis of accounting would

be recognized as an asset or liability under the Framework, the entity recognizes that asset or

liability as the Framework would require it to be recognized in the statement of financial position

of the acquiree.

103.16 Financial Assets and Liabilities Exemption.

With respect to financial assets and liabilities, the Framework requires an entity to separate the

component parts of a financial instrument that contains both a liability and equity component.



However, an exemption is permitted in the opening statement of financial position if the liability

component is no longer outstanding at the date of transition to the Framework. In that case, the

components need not be separated. This topic is discussed further at paragraph 502.10.

103.17 Asset Retirement Obligations Exemption.

With respect to asset retirement obligations, if an entity has not previously recognized an asset

retirement obligation and a corresponding asset retirement cost as required by the Framework, the

entity may measure the obligation at the date of transition and estimate the amount that should be

added to the carrying amount of the related asset based on the original and remaining life of the

asset. For example, if the asset retirement obligation is measured at $200,000 and the related asset

has an original and remaining life of 20 years and 10 years, respectively, the entity would recognize a

$200,000 liability and increase the carrying amount of the related asset by $100,000. The difference

between the change in the obligation and the change to the carrying amount of the asset is charged

to opening equity at the date of transition to the Framework.

103.18 Prohibitions to Retrospective Application in the Opening Statement of Financial Position.

The following accounting requirements under the Framework are prohibited from being applied

retrospectively in the opening statement of financial position:

• Derecognition of financial assets and liabilities. The Framework specifies that transferred

financial assets are derecognized when control is surrendered. Financial liabilities are

derecognized when they are extinguished (that is, discharged, cancelled, or expired). However,

that accounting generally is applied prospectively to transactions occurring on or after the date of

transition. An entity may only apply that accounting retrospectively to past transactions (including

prior business combinations as discussed in paragraph 103.15) if the information necessary to

apply it was obtained when those transactions were initially accounted for.

• Estimates. An entity may not restate the estimates in its opening statement of financial position

unless objective evidence exists that those estimates were in error at that date. However, an

estimate may need to be restated to conform with the Framework. For example, an entity

accounting for income taxes under GAAP may recognize an estimated deferred tax valuation

allowance. That estimate would not be recognized under the Framework if the taxes payable

method of accounting for income taxes is chosen. If the Framework requires a new estimate

that was not required under the entity's previous basis of accounting, that estimate should be

based on conditions that existed at the date of transition.

• Noncontrolling interests. Unless an entity chooses to restate a prior business combination as

discussed in paragraph 103.15, the Framework's accounting guidance for noncontrolling

interests should be applied prospectively for (a) changes in the parent's ownership interest in a



subsidiary that do not result in a loss of control, (b) loss of control over a subsidiary, and (c)

attribution of income to the owners of the parent and the noncontrolling interests, even if it results

in the noncontrolling interests having a deficit balance.

103.19 Prepare Financial Statements and Disclosures

When preparing its first financial statements under the new Framework, an entity should ensure that

the financial statements are clearly distinguishable from GAAP financial statements, and significant

differences from GAAP are disclosed, as previously discussed. To reiterate—

• The authors believe that financial statements prepared under the new Framework should not

use GAAP titles to avoid confusing users of the financial statements about the basis on which

they are prepared.

• The Framework requires the notes to the financial statements to prominently state the basis of

accounting used to prepare the financial statements. In addition, as required by the compilation,

review, and auditing literature, practitioners who are reporting on financial statements prepared

under the new Framework should ensure that those statements adequately disclose the

differences from GAAP.

Preparing the first financial statements under the FRF for SMEs is discussed further in chapter 4,

and illustrative financial statements are presented in Appendixes 5A and 5B.

103.20 In addition, if the date of transition is earlier than the current period so that prior period

financial statements are presented, those prior period financial statements should be restated to

conform with the Framework. The following transition disclosures also should be made:

• The amount of each charge or credit to equity at the date of transition to the new Framework

resulting from the adoption of its principles and the reasons for each charge or credit.

• The exemptions used in preparing the opening statement of financial position.

• The disclosures for changes in accounting policy.

See the FRF for SME disclosure checklist at Appendix 4A.



An entity that is not a going concern should prepare its financial statements on the liquidation

basis of accounting.


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104 OTHER IMPLEMENTATION STEPS

104 OTHER IMPLEMENTATION STEPS

104.1 Previous sections of this chapter provided an overview of the FRF for SMEs and guidance on

the conversion process. This section provides guidance on the following steps that are integral to the

implementation process:

• Learn more about the FRF for SMEs and identify available resources.

• Train staff.

• Inform and educate clients.

• Inform and educate financial statement users.

• Integrate the FRF for SMEs into the firm's audit and attest methodology and guidance.

Learn More about the FRF for SMEs and Identify Available Resources

104.2 Learning about the new Framework is the first step toward being able to offer it as a reporting

alternative to small- and medium-sized clients. To be most effective, the authors recommend

assigning an individual or task force to take the lead for the rest of the firm. That individual or task

force can become the firm's expert and direct the remainder of the firm's efforts.

104.3 This Guide is intended to assist practitioners in learning more about the FRF for SMEs. It



includes an abundance of valuable information, from background and basic concepts to detailed

guidance on differences from GAAP, examples of converting from GAAP to the Framework,

illustrative financial statements, and a disclosure checklist. Throughout the Guide, the authors

provide practical advice on issues they believe will be most common for small- and medium-sized

entities considering implementation of the Framework. Practitioners are also encouraged to read the

Framework, which is available on Checkpoint.

104.4 In addition to using the materials available in this Guide and the Framework on Checkpoint,

practitioners can visit the website at aicpa.org/FRF-SMEs for additional AICPA resources, including

toolkits for CPAs and CPA firms, financial statement users, and small businesses. Webcasts,

publications, CPE courses, and conference sessions are also available to supplement those

resources.

Train Staff

104.5 Before the firm can begin offering the FRF for SMEs as a reporting alternative to clients, it will

be necessary to train the firm's staff. The authors recommend that the individual or task force

responsible for the firm's implementation efforts develop a staff training plan. As a starting point, the

firm can point its staff to articles that provide an overview and background information. For example,

Thomson Reuters developed a special report, Financial Reporting Framework for Small and Medium-

Sized Entities, which is available at https://tax.thomsonreuters.com/FRF. Staff members can also

be directed to monitor the ongoing activities of the AICPA at aicpa.org/FRF-SMEs.

104.6 For more formal staff training, a staff training PowerPoint is included at Appendix 1A. Firms can

use that template to provide an in-house training program. Self-study courses, webinars, and

attendance at conferences also provide formal staff training options. Practitioners can visit

cl.thomsonreuters.com for a list of self-study and webinar offerings available from Checkpoint

Learning.

Inform and Educate Clients

104.7 The guidance in section 103 can be used to identify clients who may be potential candidates

for the FRF for SMEs. When potential candidates are identified, the firm can begin informing and

educating them about the Framework and its benefits. That may be done in a number of ways,

including the following:

• The firm's website and social media The firm can help position itself as an expert in the FRF for

SMEs by including information on its website and in social media about the Framework and the

firm's offerings. Clients who visit those locations may be prompted to contact the firm for more

information.

• Client-facing communications The firm may include an article in its newsletter or send clients

who are potential candidates for the Framework a direct communication, such as a flyer or

http://aicpa.org/FRF-SMEs

https://tax.thomsonreuters.com/FRF

http://aicpa.org/FRF-SMEs

http://cl.thomsonreuters.com/



letter, outlining key features and benefits of the Framework and offering to provide more in-depth

information. Newsletters or flyers can also be placed in the firm's lobby and on its website.

• Client presentations For clients who are the best potential candidates for applying the

Framework, the firm should seek the opportunity to provide more in-depth information. A client

PowerPoint presentation is included at Appendix 1A for that purpose. The presentation can be

tailored as appropriate for the specific client or to add the firm's logo and other stylistic

preferences. Clients who are the most interested based on the firm's presentation will probably

have follow-up questions about specific differences between the new Framework and their

current financial reporting framework, acceptance by their financial statement users, and the

transition process. When answering those questions, it may be helpful to review a set of

illustrative financial statements, such as the ones at Appendix 5A or Appendix 5B, with them.

104.8 The individual or task force responsible for the firm's implementation efforts needs to ensure

that staff members are fully aware of the firm's plans for introducing clients to the FRF for SMEs. It is

important that staff know what tools and resources are available as they are talking to their clients.

Inform and Educate Financial Statement Users

104.9 As previously indicated, many practitioners familiar with the Framework believe acceptance by

lenders will be the biggest challenge to its overall acceptance. To help overcome this hurdle,

practitioners may want to take an active role in informing and educating financial statement users

about the Framework. That effort may be directed specifically to the financial statement users of

particular clients, such as their bankers or surety companies, or more generally to the business

community, such as through presentations to local civic or small business organizations. Such

presentations may benefit the firm's clients by helping to gain acceptance for their financial

statements if they are considering conversion, and may also benefit the practitioner by positioning

him or her as an expert on the Framework and a local authority in providing that financial reporting

option.

104.10 The authors recommend that the individual or task force responsible for the firm's

implementation efforts develop a plan for informing and educating financial statement users.

Regardless of whether that plan is broadly directed to the community or focused on specific financial

statement users, before proceeding with the conversion for a particular client, it is important to

ensure that their financial statement users will accept financial statements prepared on a new basis

of accounting, as discussed beginning in paragraph 103.3. The authors recommend that any

discussions with a specific client's financial statement users also include the client in attendance.

104.11 When making presentations to financial statement users, practitioners will want to point out

the reliability of financial statements prepared using the Framework and the ability of FRF for SMEs to

deliver relevant information. Practitioners can explain how and why the Framework was developed

and identify the benefits for financial statement users. Practitioners should emphasize that bankers,



surety companies, and other financial statement users that receive financial statements prepared

based on the FRF for SMEs will find the relevant information they need to understand the company

and its finances. In addition, the reporting company will benefit because applying the Framework is

potentially more cost-effective than applying GAAP. It may be useful to review an illustrative set of

financial statements and to make it clear that the Framework contains a full set of disclosure

requirements targeted to small- and medium-sized entities so that important information will not be

omitted. The presentation at Appendix 1A can be tailored for this purpose.

Integrate the FRF for SMEs into the Firm's Audit and Attest Methodology and Guidance

104.12 To effectively and efficiently offer the FRF for SMEs as a reporting option for clients, firms will

need to incorporate it into their audit and attest methodology and guidance. That includes adding to

the firm's practice aids appropriate reporting templates for audits, compilations, and reviews. That

also includes incorporating into the firm's materials an FRF for SMEs disclosure checklist. Report

examples are included at Appendix 4B and a disclosure checklist is provided at Appendix 4A.




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105 WHAT THIS GUIDE COVERS

105 WHAT THIS GUIDE COVERS

105.1 The remainder of this Guide provides a detailed discussion of the FRF for SMEs, including

differences between the FRF for SMEs and traditional GAAP, along with related conversion guidance

and examples, by financial statement area. It is divided into the following chapters:

• Chapter 2 —“Financial Statement Concepts,” provides guidance on applying the general

principles of the FRF for SMEs to select accounting policies and achieve fair presentation in the

financial statements. The guidance can be used when exercising professional judgment about

the application of the FRF for SMEs accounting framework, for example, when a particular

circumstance or transaction is not specifically addressed in the Framework.

• Chapter 3 —“Measurement Considerations,” provides detailed guidance on how to measure

assets, liabilities, revenues, and expenses under the new Framework, and explains the

differences between GAAP and the FRF for SMEs.

• Chapter 4 —“Presentation and Disclosure Considerations,” provides detailed guidance and

illustrations of the disclosures that are required under the new Framework and how those

disclosures differ from GAAP.

• Chapter 5 —“Implementing the FRF for SMEs,” provides detailed guidance on how to first apply

the Framework, including providing two illustrations of entities that chose to convert from GAAP

to the FRF for SMEs. The illustrations present the reasons management chose to convert to the

FRF for SMEs, the GAAP-basis financial statements and related notes, the adjustments

necessary to convert financial statements from GAAP to the FRF for SMEs, and the resulting

financial statements and notes prepared using the FRF for SMEs.




END OF DOCUMENT -


Documents

100 Introduction - Thomson Reuters...between FRF for SMEs and the cash, modified cash, or tax basis of accounting or converting from those bases. For guidance on the cash, modified