TO: Connie Confused
FROM: Annexmari Mejia
DATE: March 21, 2013
SUBJECT: FRF for SMEs

In July of 2009 the International Accounting Standards Board issued the FRF for SME’s in response to the burden that these entities faced with trying to conform to U.S. GAAP. Research and stakeholders opinions made it apparent that a special framework was required for the use of these businesses. Compliance with U.S. GAAP is costly and expensive and some of the principles are irrelevant for SMEs.
You asked to be provided with a short summary explaining the FRF for SMEs. Once, the framework was issued the board wanted to allow two years for the entities to execute the FRF so they can then evaluate the implementation and determine whether it would need to be amended after. The board defined SME’s as entities that have no public accountability. In other words, the company does not trade stocks or bonds in the public market or are in the process of doing so. They also may not hold assets in a fiduciary capacity for outsiders as one of its primary businesses; i.e. banks. Essentially, the framework is designed for privately owned small profit enterprises that do not have to conform to GAAP.
The reasons for the proposal of this change are to address issues encountered by the stakeholders when using the financial statements. For this to be accomplished, the framework will be using accounting principles relevant to SMEs and reducing disclosure in the statements considerably. Other reasons are to reduce costs and lessen complexity. Because these entities produce financial statements for managements use or for tax and government authorities this is a solution for owner-manager businesses that need financials with a legit framework that has undergone public scrutiny and review by certified professionals.
The proposed frameworks for small-medium entities have several advantages a few