Small Business – FASB and AICPA Make Proposals on “Small GAAP”

For a number of years now, practitioners and small businesses have argued that the increasingly complex and ever-changing accounting standards written with large, publicly traded companies in mind are leaving the small business owner behind. As a result, the Financial Accounting Standards Board (FASB) and the American Institute of CPAs (AICPA) have made competing proposals about what to do about the issue.

In May 2012, the Financial Accounting Foundation, which oversees FASB established the Private Company Council (PCC) to determine whether exceptions or modifications to GAAP were need to address the issue. On July 1, 2013, FASB issued 3 exposure drafts developed by the PCC. These exposure drafts, if passed, would change Generally Accepted Accounting Principles and become part of the reporting hierarchy. The three proposals would affect how intangible assets are recognized, while the second would change the way goodwill is written off and the third affects accounting for interest rate swaps.

The AICPA, on the other hand, is taking a completely different approach – proposing a reporting framework other than GAAP. While not a new approach -“other comprehensive bases of accounting” or “OCBOA’s” have existed for as long as there have been accounting requirements – the AICPA is proposing a different framework from the typical cash and tax basis of accounting models currently in use. On June 10, 2013, the AICPA released a new, optional reporting framework that provides an alternate GAAP for small and medium sized businesses. By presenting the framework as an alternate to GAAP, no changes in existing GAAP is required. The AICPA anticipates that the framework would be updated every three or four years.

Small Business – FASB Issues ASU 2013-07 on the Liquidation Basis of Accounting

There is minimal guidance in current U.S. generally accepted accounting principles (GAAP) that addresses when it is appropriate to apply, or how to apply, the liquidation basis of accounting. Consequently, there is diversity in practice. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting.

The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception.

The entire content of ASU 2013-07 can be downloaded at www.fasb.org