FRF for SMEs and Small Business Borrowers
In 2013, the AICPA released the Financial Reporting Frame-work for Small and Medium-Sized Entities (or FRF for SMEs). This is a simplified non-GAAP accounting frame-work that SMEs can use to present financial statement information to their stakeholders, including bank lenders.FRF for SMEs is one of several different Other Comprehensive Basis of Accounting (OCBOAs) that small and mid-sized private companies can use for reporting financial information. According to the AICPA, it is more robust than other OCBOAs (like cash and tax basis reporting) but much less complex than full-blown GAAP, which many SMEs don’t need.There is no standard definition of “small and medium sized entities” but there are some general characteristics of typical entities that may utilize the FRF for SMEs accounting framework. The characteristics listed are not all-inclusive and they are not a list of required characteristics, the list noted below are general characteristics you could find in a business utilizing the FRF for SMEs framework:
- The entity does not have regulatory reporting requirements that require it to use GAAP-based financial statements.
- A majority of the owners and management of the entity have no intention of going public.
- The entity does not operate in an industry in which the entity is involved in highly-specialized accounting transactions.
- Key users of the entity’s financial statements have direct access to the entity’s management.
- The entity’s financial statements support applications for bank financing but the lending decision is not solely being made on the financial statements but also on available collateral or other evaluation mechanisms not directly related to financial statements.

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