Financial Reporting Framework

GAAP: Generally Accepted Accounting Principles

= General Purpose Financial Reporting Framework by FASB & SEC

Financial Reporting Framework's criteria:

• Recognition 
• Measurement
• Presentation
• Disclosure

2 General purpose frameworks:

GAAP or IFRS

nonpublic entities - OCBOA: Other Comprehensive Basis of Accounting

Special Purpose Frameworks:

1. Cash Basis
   • Recognize revenues when they are received (not earned),
   • Expenses are recognized when they are paid (not incurred),
   • Fixed assets are expensed and not capitalized.
2. Modified Cash Basis
   • Hybrid b/w cash and accrual
   • Assets can be capitalized and taxes & inventory can be accrued
3. Tax Basis
   • Revenues and expenses are recognized for financial reporting purposes as income tax return
   • Could be cash-basis or accrual-basis
4. Contractual Basis
   • Party to a contract 
5. Regulatory Basis
   • Governmental regulatory agency to report to
6. FRF for SMEs = Financial Reporting Framework for Small and Medium-Sized Entities

Under accrual basis, revenues are recognized in the periods in which they are earned (not received), and expenses are recognized when they are incurred (not paid). 

Alternative Accounting Approaches for Nonpublic Entities:

Private Company Council (PCC) - evaluate existing GAAP to determine disclosures (nonpublic may be exempt)

FASB conceptual framework for accounting:

Objectives of financial reporting: USEFUL

1. Relevance 

• Predictive Value
• Confirmatory Value (Feedback)

2. Material

3. Faithful Representation

• Free from Error
• Neutral 
• Completeness

4. Enhancing Qualitative Characteristics

• Comparability (Consistency)
• Understandability
• Timeliness Verifiability 

Constraint: Cost/Benefit