Multiple Accounting Reporting
Frameworks
Jerry G. Kreuze, PhD, CPA, is a full
professor in the Haworth College of
Business, Western Michigan University. 
He primarily teaches financial
accounting and reporting courses for
both online and on-campus classes.  a ­flowchart useful in selecting an appropriate framework.
He has written over 100 articles that
have appeared in various academic
and professional outlets.  Jerry’s
research interests include financial
reporting issues, accounting standards
and their applications, and related
management decisions.
Sheldon Langsam, PhD, CPA, is a
full professor in the Department
of Accountancy, Haworth College
of Business, Western Michigan
University. He teaches financial
accounting and reporting,
governmental and nonprofit, and
a graduate auditing course. He has
written numerous articles for both
academic and practitioner journals.
Sheldon has taught continuing
professional education courses for the
AICPA.
© Business Expert Press 978-1-94858-009-0 (2018)
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Company Choice
Jerry G. Kreuze and Sheldon A. Langsam
Abstract: Generally accepted accounting principles no
­longer  come all in one package. There are now several
choices of which framework to apply. All users, i­ nternal and
external, should be aware of these ­frameworks to properly
­select the most appropriate framework for each p ­ articular
company. Public companies have fewer choices than
­
do p­ rivate companies, but still have choices. This a­rticle
discusses these competing ­
­ frameworks, ­ illustrates some
present ­differences between those frameworks, and presents
Keywords: Accounting frameworks, Generally accepted
accounting principles, IFRS for SMEs, Private Company
Council
Introduction
Companies now have choices in the accounting stan-
dards they wish to apply for external reporting purposes.
Historically, companies in the United States, whether
­
large or small, had to follow generally accepted account-
ing principles issued solely by the Financial Accounting
Standards Board (FASB) or its predecessor organizations.
That is, only one GAAP existed, with great consistency that
contained only very limited disclosure differences. Now
financial accounting frameworks consist of two types, and
each type has further options. All of these frameworks can
enable credible financial reporting. The choice of frame-
work is a matter of weighing the alternative framework
features against the company’s reporting requirements
and the desires of its investors, creditors, and other users.
While different labels are possible, these competing
frameworks can be dichotomized into two types, namely
GAAP frameworks and special-purpose f­ rameworks
(SPFs). GAAP frameworks are established by recog-
nized bodies in the United States and abroad. In the
United  States, GAAP for private and public entities is
Expert Insights
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 Multiple Accounting Reporting Frameworks

established by the FASB; the Governmental
Accounting Standards Board for state and
local government entities; and the Federal
Accounting Standards Advisory Board for
federal governmental agencies. Interna-
tionally, the International Accounting Stan-
dards Board (IASB) establishes GAAP called
International Financial Reporting Stan-
dards (IFRS). Additionally, the IASB also
issues IFRS for small and medium-sized
entities (SMEs), which is considered GAAP
for SMEs. SPF (also known as other com-
prehensive bases of accounting [OCBOA])
include cash basis, modified cash basis, tax
basis, regulatory basis, contractual basis,
and other non-GAAP bases of accounting
that utilize a definite set of logical, reason-
able criteria applied to items appearing in
the financial statements. Competition be-
tween the FASB and the American Institute
of Certified Public Accountants (AICPA)
has developed in this SPF arena, allowing
companies a choice among alternatives.
Companies and their financial statement
users must fully understand these frame-
work alternatives when making framework
decisions, however. Conversations between
investors, creditors, other users, and ac-
countants should take place prior to adopt-
ing a framework. Table 1 provides criteria
that should be helpful in adopting a particu-
lar accounting framework.

Table 1: Criteria for Determining the Appropriate Financial Reporting

Framework for Private Companies
Step #1
Does the entity have a reporting
requirement that requires GAAP-based --------------------yes-----------→ Use GAAP (Step #2)
financial statements?
 |
No
 |
Does the entity have transactions that require highly
specialized accounting guidance making a non- -----------yes-----------→ Use GAAP (Step #2)
GAAP framework insufficient for financial?
reporting purposes?
 |
No
 |
Entity that has some of the following may
consider using GAAP-based financial reporting
a. Entity has plans to broaden ownership interests     ---
or participate in a public offering |
b. Entity has or plans to have significant foreign operations |
foreign operations |
c. Entity has significant partnership with other |
companies using GAAP-based reporting |---yes------→ Consider using GAAP
d. Entity favors GAAP-based standards | (Step #2)
e. Credit agencies and banks used by entity favor |
GAAP-based financial reporting |
f. Entity has plans to sell to another entity where |
GAAP-based reporting is required or preferred |
g. Entity plans to access foreign capital or debt |
markets |
h. Key users of the entity do not have direct access |
to management |
i. fair-value accounting has significant utility |
j. Complex topics (like deferred income taxes, |
comprehensive income, and pensions) are highly |
relevant to the entity     --

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 Multiple Accounting Reporting Frameworks

 |
No
 |
Consider using non-GAAP basis (Step #3)

Step #2

GAAP-based financial reporting framework

a. Entity has significant foreign operations or plans to     --

expand foreign operations |
b. Entity plans to access foreign capital or debt markets |
c. Entity has a foreign parent or subsidiary reporting under |
IFRS or IFRS for SMEs |---yes-→ Consider using IFRS or
d. Entity has significant businesses with foreign suppliers, | IFRS for SMEs
vendors, or customers who use IFRS or IFRS for SMEs     --
 |
No
 |
Consider using U.S. GAAP issued by the FASB

Step #3

Non-GAAP-based financial reporting frameworks

Does the entity:

a. deal in professional services, medical, retail, real estate,     --
farming, construction, or not-for-profit organizations |
b. have users primarily interested in cash flows |
c. believe cash basis reporting is cost effective |
d. have smaller, simpler operations |---yes-→ Consider using cash or
e. have insignificant amounts of debt, fixed assets, or | modified cash basis
other items more properly recognized under the | frameworks
accrual basis     --
 |
No
 |
Consider using standards issued by either
PCC or FRF for SMEs
 |
 |
Preference may be given to PCC standards if they want financial statements
more closely aligned with GAAP. However, FRF for SMEs may be more consistent,
closer to the U.S. tax code, and allow the use of some accounting principles,
like the LIFO inventory method.

Accounting Reporting Frameworks: highly specialized accounting guidance

GAAP
When reporting the results of opera-
tion under the GAAP framework, three
choices exist: U.S. GAAP issued by the
FASB, IFRS issued by IASB, or IFRS for
SMEs issued by IASB. These reporting
frameworks are recommended when the
­ ­interest plans or public offerings of stock.
GAAP ­financial reporting is required par-
ticularly if the e
­ ntity’s operations involve
in ­providing fair financial reporting. The
­determination should consider the needs
of financial statement users weighed with
the cost and benefits of GAAP reporting.
Some circumstances suggesting pref-
erence to GAAP framework reporting
can include any broadened ownership
­Expanded operations may signal use of a
GAAP f­ramework. Engaging in complex

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