CFMA/NASBP Provide Small-and medium-sized Enterprise Perspective to AICPA

Recently, the Construction Financial Management Association (CFMA) and NASBP provided comments in response to an American Institute of Certified Public Accountants (AICPA) proposal to create an alternative financial reporting framework for small-and medium-sized enterprises (SMEs).

Upon CFMA’s invitation, NASBP served as a liaison to CFMA’s task force to research and comment on AICPA’s proposed financial reporting solution for SMEs. Seeing this as an opportunity to help shape a standard that may affect financial statements of small and medium-sized construction firms for years to come, NASBP issued a survey in January of its members and surety bond underwriters. The NASBP survey enabled NASBP and CFMA to review the survey results and provide AICPA with information about the practices, concerns, and interests of surety professionals, who frequently utilize SMEs’ financial information. The results of the NASBP survey are referenced in the comment letter. To view the comment letter, click here.

The comment letter is another way in which NASBP continues a cooperative relationship with CFMA to provide feedback on various proposed changes to GAAP. The letter includes CFMA’s acknowledgment and appreciation of NASBP and NASBP liaison representative, Darrin Weber of IMA, Inc., Dallas, TX, for their assistance in the response to AICPA’s proposed reporting framework for SMEs.

Background

The Financial Accounting Standards Board (FASB) is the sole entity with the authority to prescribe generally accepted accounting principles in the U.S. (GAAP). Debate in recent years has centered around the relevance of GAAP for private companies, which has led to a number of recent changes at FASB including, among other things, the appointment of Board members with significant private company experience, a change in the deliberation protocols where the specific needs of private companies are evaluated prior to the issuance of a new standard, the assignment of staff project team members whose specific focus is on identifying and addressing private company concerns, and, most recently, the formation of the Private Company Council (PCC), which has the ability to review existing standards for changes that should be made for the benefit of private companies and submit recommendations for amendments to these standards. At their inaugural meeting in December, the PCC agreed to begin revisiting standards regarding variable interest entities, uncertain tax positions, and interest rate swaps to improve financial reporting for private companies and their users.

Concurrent with the formation of the PCC, the AICPA undertook an effort to create an alternative framework to GAAP. Private companies, which meet certain profile characteristics, could choose to issue their financial statements using either GAAP or AICPA’s new alternative framework, called the Financial Reporting Framework for Small and Medium Sized Entities (FRF for SMEs).

This AICPA framework, as currently proposed, is 252 pages in length and, once it is released, the AICPA has indicated that it will wait at least four years before re-opening the framework for any amendments or modifications. While this framework significantly reduces the complexity which exists in GAAP, it also introduces more room for judgment by limiting the amount of guidance and restrictions placed upon how certain transactions are accounted for or reported. For example, explicit rules on how claims, back-charges, approved and unapproved change orders should be measured and reported, which is present under SOP 81-1, does not exist in the FRF for SMEs.

To find out more about AICPA’s proposed framework, please click here.