The AICPA held its four regional meetings of Council over the last couple of weeks. Regional meetings of Council are smaller assemblies that only members of Council attend (no guests or members of the press attend). This, along with the smaller meeting size, allows for greater and more frank discussion among members of Council. The AICPA took advantage of this opportunity to have in-depth discussions on its strategic plan down to actual implementation initiatives.
If you are like many of us buried in work these days, you might have missed the impact the JOBS Act will have on our profession. Dodd-Frank exempted public companies with a market cap below $75M from the section 404(b) (obviously logic evaded congress as it is precisely these small companies that are most susceptible to fraud and the most in need of controls). Congress continued to defy logic by exempting new public companies for their first 5 years of being public from 404b if their market cap is under $750M and their revenues are under $1B. If that wasn’t bad enough, congress also decided to get into the accounting standard setting process. Under the act, new public companies that qualify for exemption from section 404(b) will be exempt from implementing any new accounting standards if the standard includes a delay in implementation for private companies. Most new standards today include a delay for private companies, so this in effect delays all new substantive accounting standard changes for new public companies for the same period of time. This is congress’s first successful attempt to set accounting standards since the exchange acts of 1933 and 1934 which gave the SEC standard setting authority (which the SEC then passed to the private sector for the most part). This is a dangerous precedent and we need to be on alert for additional attempts by congress to legislate accounting standards. As vocal as I have been about the FASB, I still see the FASB as a far superior alternative to congress setting accounting standards.
And a word for those opposed to differential standards for private companies. Where are your voices against this set of differential standards? Congress just set up a scheme for two different sets of standards for two different classes of public companies. This makes even less sense given the users of new public company financial statements have the exact same needs as the users of existing public company financial standards.
The exemption also applies to auditing standards. There is a 5 year exemption from new auditing standards for companies meeting the 404(b) exemption threshold. This may prove to be the most contentious exemption between a new public company and it’s auditor. Auditing standards are essentially minimum requirements for an auditor to meet when performing an audit. An auditor can (and should) go beyond the minimum requirements depending on the audit. My guess is the auditor will often follow all current standards regardless of the exemption, but that sets up the contention. I can see the discussions now between the business and the auditor with the business asking why certain procedures that are costing time and money are being performed when they are not required by the older auditing standards. Even better, can you imagine the auditing standard on the auditor’s report being changed, but the business requesting the old report format be used because they don’t want disclosures required by the new report to be included.
There were a lot more topics covered in the meeting, but in keeping with the theme that the regional meetings are more private, I won’t go into them in detail in this blog. I will, however, continue to keep you informed of the issues through this blog as they become public over the coming months during the April AICPA Board meeting and the May AICPA Council meeting open to the public.