Change Country

Manufacturers & Distributors

Do You have to Adopt the FASB Revenue and Lease Standards?

Posted on June 11, 2019 by

Dave Van Damme

Dave Van Damme

Share This

An Alternative Solution

Do you provide monthly or quarterly financial statements to your bank or other stakeholders? Are those financial statements required to be prepared using US GAAP standards? If so, beginning in 2019 you should be reporting using the new revenue recognition standard, and beginning in 2020 your US GAAP statements should be prepared using the new leasing standard. When your CPA does your audit or review for calendar year 2019 (2020 leases) or fiscal year 2020 (2021 leases) they will be looking for support from you regarding the steps you took to analyze contracts and leases to ensure that these new standards are being properly applied so they can attest to your financial statements being prepared in accordance with US GAAP.

Are you thinking, “Uh-oh, I haven’t done anything with the new standards yet”? If so, let’s look at an alternative that may be of interest to you.

In June 2013, the AICPA developed a new non-GAAP reporting framework called the Financial Reporting Framework for Small and Medium Sized Entities (FRF for SMEs). It is an accrual based framework that blends traditional accounting and accrual income tax methods. The framework is uncomplicated and principles based. It is based on historical cost, provides optionality for certain accounting policies and includes very targeted disclosures to make the financial statements clear, concise and understandable for the reader.

The FRF for SMEs provides a standardized framework with a comprehensive, integrated set of financial statements, including a cash flow statement and informative disclosures. It is intended to be used by privately held, often owner managed, for profit businesses that do not intend on going public and do not operate in an industry with highly specialized accounting guidance like financial institutions, insurance, or investment companies. The framework provides owner-managers reliable financial statements to confirm assessments of performance, determine what they owe and own and understand cash flows. The external financial statement users of a company that is a good candidate for using the FRF for SMEs typically have direct access to management.

The FRF for SMEs framework from beginning to end is approximately 188 pages long and easy to understand. It is intended to remain stable rather than having the significant changes that we see in US GAAP. Your company will continue to be able to receive an audit or review opinion as required by your lending or other agreements.

We have successfully assisted our clients in adopting the FRF for SMEs framework over the past five years. One of the most important steps is stakeholder education. We recommend meeting with lenders, including the credit analyst. In that meeting you can provide a company specific discussion of any differences from US GAAP and present before and after financial statements and footnotes. There are also many education materials available on the AICPA website including a letter from the American Banker’s Association in support of the framework. Loan document wording may have to be modified to remove the language requiring financial statements in accordance with US GAAP. Some alternative wording we have seen used successfully is:

“GAAP” shall mean generally accepted accounting principles consistently applied, or an accounting method approved by the AICPA and agreed to by Bank (i.e. FRF for SME (Financial Reporting Framework for small and midsize enterprises))

Or

Such financial statements shall be prepared in accordance with the financial reporting framework for small and midsize enterprises consistently applied (“FRF for SME”), shall be in such detail as Bank may reasonably require, and shall be compiled by independent certified public accountants of recognized standing selected by Company and acceptable to Bank.

The FRF for SMEs is an excellent solution for some companies. Clayton & McKervey is available to assist you in considering this alternative reporting framework. If US GAAP is the better reporting framework for you we are happy to assist in the adoption of the new revenue recognition and lease standards as well.

Share This

Dave Van Damme

Shareholder

Leading the firm's advisory & assurance group, Dave supports closely held businesses with audits, financial reporting and fraud analysis.

Related Insights

Manufacturers & Distributors

6 Ways to Overcome M&D Supply Chain Obstacles

Posted on September 27, 2022 by

Katie Blake
When we talk about the manufacturing and distribution supply chain, we mean raw materials and finished goods that travel back and forth for thousands of miles before arriving at their final stop. These trips include a complex mix of trucks, trains, container ships and storage facilities plus countless touches by humans and computers. Here are some supply chain obstacles you might be facing and what you can do to overcome them.

Manufacturers & Distributors

Michigan Manufacturers: Talent Funding on the Way

Posted on September 9, 2022 by

Jim Biehl
In talking with manufacturers, we know that talent is a top issue. If you’re a manufacturer in Michigan seeking assistance with talent retention, you don’t want to miss out on applying for the Going PRO Talent Fund. This fund is designed to help employers with training, developing and retaining employees.

Manufacturers & Distributors

Are You Ready for the Bonus Depreciation Withdrawal?

Posted on August 31, 2022 by

Jim Biehl
America’s bonus depreciation addiction is scheduled to end. It may not be “cold turkey” but all businesses need to review the pending changes and related tax and cash flow impacts, especially considering a potential business slow down and/or recession.  

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content