Judging by the AICPA's PR blitz, you'd think that everyone was excited about their release of its Financial Reporting Framework for Small- and Medium-Sized Entities. Just out of curiousity, I went back and I read three articles on the subject from Accounting Today, the Wall Street Journal, and the New York Times to see if there was any dissent on the matter. And what I found was interesting.
Floyd Norris' article only mentioned an idealist:
One dissenting member of the [blue-ribbon panel on standard-setting for private companies] contended that only companies that did not like some standards, not users of financial statements, were demanding changes.
Okay, fine. That's one way to look at it. Michael Rapoport's article is slightly more interesting:
Some have opposed the group's efforts, saying the AICPA should wait for the Private Company Council to develop its modifications to GAAP to benefit private companies instead of trying to develop a separate system.
Aha! There's something -- competing accounting standards! We all know that the AICPA loves encouraging good competition amongst its peers, as its foray into the management accounting designation business aptly demonstrated, so why not try a new non-GAAP method that would compete with anything the PCC puts out?
"The creation of the Private Company Council by the Financial Accounting Foundation and today's issuance of the FRF for SMEs gives private business owners two more viable options,” said Barry Melancon, CPA, CGMA, president and CEO of the AICPA. “The FRF for SMEs has been developed to provide consistent and simpler financial statements for small and medium-sized entities where GAAP is not required.”
“This really is a game-changer,” said Bob Durak, director of Private Company Financial Reporting Accounting Standards at the AICPA. “Once it’s released, the millions of small businesses across the country will have another set of standards to choose from. And it’s tailored to their needs. It’s cost-effective, and a simplified approach -- it’s really a response to market demand. It had become very clear to us that there was a need for a non-GAAP reporting option, and this is the CPA profession in action, responding to the needs of the small business community.”
You gotta hand it to the AICPA. They don't waste any time pouncing on opportunity when they see it. But that's not even the best part. The best part is that the Financial Accounting Foundation is stewing over this. I mean, read this statement:
The FAF, the parent of both the PCC and the Financial Accounting Standards Board, which sets GAAP, issued a simultaneous release clarifying the differences between the two. “The AICPA, with its Financial Reporting Framework, is creating a non-GAAP, special purpose framework … for smaller, owner-managed, ‘Main Street’ businesses, whose lenders or investors do not require the comprehensiveness of GAAP financial statements,” said FAF vice president of communication Robert Stewart. “We appreciate that the AICPA has made it clear … that its new framework is not -- and is not intended to be -- GAAP. The AICPA also has made it clear that businesses and accounting firms should carefully consider which financial reporting methodology -- GAAP or non-GAAP -- is most appropriate, given the business' unique circumstances.
Sounds a little passive-aggressive, no?
Think of it this way -- the FAF and the AICPA are roommates. FAF owns the house and let's the AICPA have the big room, doesn't mind if it leaves laundry in the wash for days on end, or even look at the dirty dishes in the sink. All of it is no big deal. But now, it's like the AICPA is adding on a wing to the house without asking. PLUS, during construction it's stacking boxes in the living room, and having the friends who will be living in the new wing crash on the couch. The FAF says they're okay with it, just so long as the AICPA calls it the "guest quarters" or something and the AICPA keeps its promise to keep the noise down, and OH YEAH, THE RENT IS GOING UP.
So what's the endgame? My thought is that the AICPA is hoping that small private businesses will love this new premium OCBOA because it will be far simpler than anything offered by the PCC who is simply offering select modifications to existing GAAP. This would require auditors to express opinions in accordance with another accounting method, the AICPA can issue new modified auditing standards for FRF, they can EVEN develop CPE around it. Maybe even insist that FRF for SMEs become part of the CPA exam! DIABOLICAL!
Or maybe it won't take off at all. Either way, it's fun watching the AICPA throw its weight around. Have fun everyone!