The American Institute of CPAs released a new reporting framework this week to help the millions of small businesses with no standard guidelines to follow on how to create financial statements –- a crucial step when dealing with banks, lenders and investors.
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For public companies, there are Generally Accepted Accounting Principles (GAAP), but privately held businesses aren’t required to follow GAAP. With its new Financial Reporting Framework for SMEs, the AICPA says it hopes to provide a simpler, more cost-effective and relevant method for small businesses looking to compile financial statements.
Bob Durak, the director of private company financial reporting at the AICPA, says the new FRF for SMEs will be “key for these companies who have limited resources and are always looking for ways to control costs and be more efficient.”
With the focus on relevance, the AICPA’s guidelines hope to help small businesses provide bankers only the most pertinent financial statements, so that banks can better evaluate creditworthiness and make better business decisions when it comes to lending.
And in terms of simplification for small businesses, Durak says the guidelines are more “straightforward … avoid unnecessary complexity and excess narrative.”
According to the AICPA, the FRF was created with the help of small business CPAs and professionals, as well as a banker, to bring the perspective from the lending side. In November, the organization released an “exposure draft” of the framework for public feedback, which was incorporated to the final version.
Durak says the FRF will provide “a more comprehensive picture of financial results, for businesses that want a more thorough measure of their entity’s complete economic picture.”