Current Rules-Based Approach & New, Practical Principles Based Approach
Current Rules-Based Approach
Current U.S. Generally Accepted Accounting Principles (“GAAP”) are very much a rules-based system that, in general, employs a “one size fits all” mentality. In other words, small to medium-sized entities (“SMEs”) are subject to the same basic set of accounting rules as large publicly traded companies, with only some very limited exceptions. Having to follow all of the same financial reporting rules as large companies often places an undue record-keeping, and more importantly, a financial burden on SMEs.
New, Practical Principles-Based Approach
GAAP rules are promulgated by the Financial Accounting Standards Board (“FASB”) that, while useful for the users of financial statements of larger enterprises, are often cumbersome, time consuming, expensive, and ultimately don’t provide much benefit to SMEs or the users of their financial statements (e.g. banks, shareholders, etc.)
In order to help alleviate some of the burden on SMEs, the AICPA issued an Exposure Draft on November 1, 2012 for a new Financial Reporting Framework (“FRF”) that will benefit those SMEs. The intent of this proposed FRF is to make it simpler and more cost effective for SMEs to prepare more meaningful reports.
Have questions about this new AICPA exposure draft? Contact our Cleveland, Akron and Tampa Accounting & Auditing team at 440-449-6800.