AICPA Issues Updates to FRF for SMEs

Welcome to the latest update from the Genuine Learning Blog with Melisa Galasso, where we’re diving into the recently issued updates from the AICPA regarding the FRF for SMEs. The FRF for SMEs (Financial Reporting Framework for Small- and Medium-Sized Entities) was first introduced around 2013, at a time when the conversation around “Big GAAP” versus “Little GAAP” was gaining traction. It was designed specifically for entities that require accrual-based accounting but don’t need the full range of standards covered under traditional US GAAP. The promise from the outset was stability—changes wouldn’t be frequent but rather would happen periodically to ensure the framework stays practical and relevant.

Originally issued in 2013 with a subsequent update in 2017, the FRF for SMEs is now being updated again for 2026. These updates aren’t sweeping overhauls; instead, they’re targeted, focusing on selected practice areas where clarification or modernization was needed. This approach ensures the framework remains consistent and reliable for users, maintaining its role as a stable, special purpose financial reporting option. Importantly, the FRF for SMEs remains voluntary and is still considered a special purpose framework, a blend of traditional principles and accrual income tax methods, but not US GAAP. It’s straightforward, relying heavily on historical cost, and intentionally kept simple to ease the reporting burden for closely held, for-profit entities.

A distinguishing feature of the FRF for SMEs is its reliance on professional judgment rather than highly prescriptive requirements. The disclosure requirements are minimal, assuming users are those with direct access to management. The update does not incorporate more complex standards such as Revenue from Contracts with Customers (Topic 606), Leases (Topic 842), or the Current Expected Credit Losses (CECL) model (Topic 326). It also continues to allow the use of taxes payable methods and resists a broad shift toward fair value measurements. These “not changing” elements underscore the framework’s commitment to simplicity and accessibility for small businesses.

The notable changes in this update are well-focused. First, the FRF for SMEs now expressly addresses the implementation costs associated with hosting arrangements that are service contracts which is a response to the growing prevalence of cloud-based software, where companies pay to access but do not own the software. The update also sharpens guidance around management’s assessment of going concern, adopting a 12-month period from the financial statement date. Basis of accounting disclosures have been made more explicit, with a clearer description of how the special purpose framework differs from GAAP and even an illustrative disclosure that users can adopt.

Additionally, performance measures like EBITDA, which are widely used in practice, are now expressly permitted within the framework’s reporting, complete with requirement for reconciliation to the applicable financial statement amount. The AICPA has paired these changes with a robust suite of resources including illustrative reports, FAQs, comparison documents, a disclosure checklist, and sample financial statements to help users evaluate fit and implement the updates smoothly.

For practitioners working with small, closely held private companies that don’t require the rigor of full GAAP, the updated FRF for SMEs continues to offer a pragmatic, modern solution. Updated guidance and practical tools make it easier than ever to provide high-quality, relevant financial statements tailored to the needs of small businesses. For those interested, you can find further details and resources to explore whether this framework fits your needs as the landscape for private company financial reporting continues to evolve.