Credit union executives and loan officers are very busy. Many applications fill the pipeline, waiting for consideration. Writing loans produces revenue for the credit union but sound lending decisions have to be made and money is at risk. What is needed to reduce these pressures is a way for small business members to provide financial statements that tell cooperative lenders what they need to know — and no more — in a simplified, understandable way.
The new Financial Reporting Framework for Small- and Medium-Sized Entities, developed by the American Institute of CPAs, is a financial reporting solution specifically designed for America’s Main Street businesses and users of their financial statements. This new accounting option, also called the FRF for SMEsTM framework, offers meaningful financial reports when financial statements based on generally accepted accounting principles (GAAP) are not needed.
With that as background, here are three reasons credit unions should explore this framework and learn how it could help them save time, control risks, and manage their small business members’ costs.
#1: Relevance And Reliability
FRF for SMEsTM creates a comprehensive and integrated financial picture. CPAs across the country worked to develop the framework and, as trusted advisors to small businesses, considered the needs of users of private company financial statements. Therefore, financial statements based on this framework will clearly and quickly show the company’s overall performance, what it owns and what it owes. Moreover, the FRF for SMEsTM steps in where tax- and cash-basis financials cannot, providing a statement of cash flows and more standardization. The FRF for SMEsTM framework avoids elements that are irrelevant or unnecessarily complex for the private company environment, focusing on the targeted information lenders need. In addition, if credit unions want to see a CPA’s report on the financial statements, they can. Financial statements based on the FRF for SMEsTM may be compiled, reviewed, or audited.
#2: Ease Of Use
This framework allows credit unions to easily assess the key measures of a business and its creditworthiness. With this information, they can better understand factors such as business profitability, cash to repay loans or credit lines, liabilities that may present challenges, and the assets available to cover expenses if necessary.
FRF for SMEsTM allows credit unions to see what they need to see. It informs the business or its CPA about any specific information the credit union may want. It also provides a degree of optionality, enabling the CPA to tailor the presentation of financial statements to address credit union needs.
A Long-Awaited Solution
Users of small business financial statements have long called for information that is better suited to the unique needs of Main Street America and its stakeholders. Lenders want just the information they need, delivered in an understandable and streamlined way. The FRF for SMEsTM offers that and more. It delivers financial statements that are based on traditional accounting principles, provides reliability, and demonstrates consistency so credit unions can track critical financial information. Small business members can give your institution the information it seeks and, in return, the credit union can help them control their costs. Get more information by visiting www.aicpa.org/FRF-SMEs or see what others are saying on Twitter at #MainStFinancials.
Bob Durak is the director of private company financial reporting accounting standards at AICPA and oversaw development of the FRF for SMEsTM framework. Previously, he staffed the Private Company Financial Reporting Committee, a joint effort of the AICPA and the Financial Accounting Standards Board. Durak also recently helped staff the CPA profession’s Blue Ribbon Panel on Standard Setting for Private Companies. He can be reached at firstname.lastname@example.org.
The AICPA is the world’s largest member association representing the accounting profession, with nearly 386,000 members in 128 countries and a 125-year heritage of serving the public interest. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for the profession and U.S. auditing standards for audits of private companies, nonprofit organizations, federal, state, and local governments.
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