I attended the AICPA Council meeting last week. As expected a major topic of discussion was the FAF exposure draft on private company financial reporting, but before I get to that topic I want to list some of the AICPA’s accomplishments over the past year. The AICPA achieved record membership (372,000); Completed a major bylaw change better defining the categories of membership; Reached agreement with CIMA on forming a joint venture to issue the first Chartered Global Management Accountant credential; Successfully lobbied for the repeal of the onerous 1099 requirements and the elimination of the ability to patent income tax strategies; Resolved may problems with initial IRS proposals on Tax Preparer Registration; Completed the clarity project on auditing standards for private companies; Replaced and out of date and increasing unworkable SAS 70 regime; Successfully highlighted the CPA profession to the next generation resulting in record accounting majors and graduates; And completed an update of the vision for the CPA profession for the next 15 years. I would like to highlight two of these accomplishments before I address Private Company Financial Reporting.
The new CGMA certification for CPAs with expertise in Corporate and Management Accounting is scheduled to make its debut on January 31, 2012. The core purpose of a CGMA is to be “trusted to guide critical business decisions.” This is what CPAs in B&I do everyday, but now we will have a credential to recognize the unique nature of that service and differentiate us from non-B&I CPAs as well as other “accountants” that work in business. There are going to be additional focus areas on professional development, but it won’t be only about the individual CGMA taking the initiative. Our joint venture partner, CIMA, has extensive experience in working with employers to set up development programs for finance departments and we intend to bring this expertise into the U.S. along with the CGMA. This will not only enhance the skills of CPAs in business, but also elevate CGMAs in the minds of one of the most important influencers on our careers – our employers.
CPA Horizons 2025
The AICPA has spent time working with thousands of our members to update the Vision of the future of the CPA profession during the past year. The development has been a evolution of the existing vision rather an a revolutionary change in direction. The core purpose for CPAs remains the same, “ CPAs…Making sense of a changing and complex world.” In addition many of the core competencies such as Integrity and Objectivity remain the same. Some, however, have changed. For example, “technologically adept” is now gone as a distinct competency because the concept is so pervasive it now is really part of all of the core competencies. The final report on CPA Horizons 2025 will come out after inclusion of additional feedback from Council obtained at this meeting. Be on the lookout for it late this year.
Private Company Financial Reporting
As I reported in my last blog, FAF issued an exposure draft on private company financial reporting that did not follow the Blue Ribbon Panel recommendations. The Council was extremely disappointed in the FAF and as a result passed the following resolution at the meeting.
“Be it Further Resolved, That because the Financial Accounting Foundation’s proposal does not contain the establishment of a board under the Financial Accounting Foundation empowered to set differences in U.S. GAAP standards where appropriate for privately-held companies, which is the preference of this Council, and if the Financial Accounting Foundation’s proposal is not modified to include such a board under the Financial Accounting Foundation, this Council directs the AICPA Board of Directors to consider all options, including consideration of other independent standard-setting bodies as the standard setter for U.S. GAAP for private companies, the creation of a committee or board within the AICPA or a standard-setting body as a separate entity, to develop private company generally accepted accounting principles (PCGAAP) or comprehensive private company-specific basis of accounting that would deliver meaningful, lasting improvement to private company financial reporting consistent with the Blue Ribbon Panel recommendations.”
Just to be clear, let me repeat a statement made by our new Chair-Elect Richard Caturano. The AICPA Board, Council and members do not want to take control of private company GAAP. What we want is a separate Board under FAF as recommended by the Blue Ribbon Panel sponsored by FAF, NASBA and the AICPA, but if the FAF refuses to follow those recommendations, the AICPA Council and Board will have to act accordingly.
On October 4, the Financial Accounting Foundation (FAF) released their long awaited request for comment on a plan to deal with Private Company Standards. For those who have been eagerly awaiting the next step in establishing differential private company standards after the Blue Ribbon Panel recommendations, the FAF’s request for comment was a bitter disappointment. After eight months of the least transparent process to ever come from the FASB or FAF, the recommendation included three important facets:
- Creation of a “new” Private Company Standards Improvement Council
- Creation of a framework for deciding when differential standards are appropriate
- Leaving final say on all standards with the FASB
This plan falls significantly short of the Blue Ribbon Panel recommendation to have a separate Board with final authority over private company standards. While there are some good aspects to the FAF plan – the creation of a framework for deciding differential standards – I want to point out three major problems I have with the recommendations.
First, this “new” Private Company Standards Improvement Council isn’t new at all. It sounds a lot like the Private Company Financial Reporting Committee (PCFRC) to me. The PCFRC was set up 5 years ago as a last ditch effort to deal with Private Company Standards under the existing FASB standard setting structure. It failed miserably. The FASB refused to act on several PCFRC recommendations to make standards better for private companies. Unlike NASBA and the State Boards that took our last ditch effort to work together and deal with Mobility seriously, the FASB didn’t. As a result, today we have a Mobility framework that while not perfect, works while we are nowhere on private company standards. What are we supposed to do now, trust that the FASB has seen the error of its ways? After forty years of refusing to deal with differential standards I simply do not believe that any change in the FASB attitude will last more than a year and everything will be right back to where we are now.
Second, the FAF seems to have this idea that two separate sets of GAAP – one for Private companies and one for Public companies – is a bad thing and “is not a desired outcome.” I disagree. Two sets of GAAP is exactly the desired outcome. If you think that would cause all sorts of problems you need to take a look at the rest of the world. Most countries, in addition to adopting IFRS, also now have two separate sets of GAAP. Two sets of GAAP not only works, it often works better that one set of GAAP that satisfies no one.
Finally, as a public company employee I think it’s time for the public companies to get a little selfish about the FASB. The Sarbanes-Oxley Act changed the funding for FASB so that it comes from fees paid solely by public companies. As such, I think it only appropriate that the FASB focus on public company issues. We should get something for paying the freight.
Private Company Standards are sure to be a major topic at the AICPA Council meeting this week, so I’ll provide you a further update on this important topic along with other items of interest discussed at the Council meeting in my next blog.
I just had the privilege of attending the AICPA IFRS Conference in Boston last week. There was an awesome lineup of speakers. Topics ranged from SEC enforcement of unreconciled IFRS financials to detailed discussion with FASB and IASB staff members on the leasing and revenue recognition proposals. I wanted to take a moment to highlight a few of my observations from the meeting.
- No one seems to think that SEC convergence/endorsement proposal is the best way to implement IFRS, but everyone seems resigned to the fact that it is probably the only political way to get the U.S. to IFRS over time.
- The Chairs of the IASB and FASB are not ivory tower purest. One of the highlights of the meeting was when Hans Hoorgervorst stated he really wasn’t sure what OCI (Other Comprehensive Income) was and Leslie Siedman said she did know what it was and proceeded to explain that OCI was the place to offset changes in the balance sheet that weren’t part of net income. Not exactly a principles based answer – but it is honest.
- The slow down of the MOU projects will not impact the timing of a decision from the SEC on IFRS. This was repeated several times by many speakers including representatives of the SEC, the FASB and the IASB.
- IFRS is already here in the U.S. There are many foreign subsidiaries that are already reporting and being audited under IFRS. In addition, many companies still reporting under U.S. GAAP are dealing with lots of subsidiaries (IBM reported their number is 57 and growing) keeping their books under IFRS. Users are comparing U.S. GAAP based companies with IFRS based companies every day when making investment decisions.
- Converting to IFRS will not be a simple exercise for U.S. companies. Our accounting processes are just that – very processed based. How to account for something is decided at a high level and the rest of the staff often then just does what they are told. Under IFRS, judgment will have to pushed down much further into finance organizations. This has implications on internal Controls (can we say SOX 404), the need for training on how to make decisions, not just how to process transactions, and documentation of decisions which will be much more extensive under IFRS.
- After almost 40 years, the future of the FASB is very cloudy. What will be there role in private company standards? What will be there role in public company standards? Do they even have a reason for continued existence 5 years from now?
There were many other topics covered, but I think this gives you a flavor of what was covered. One of the great things about speaking English is it is the language of business across the world. We don’t have to learn French, German, Chinese or Japanese to conduct business in the world. IFRS is no longer becoming – it is – the world wide financial language for business. While sharing many “words” with U.S. GAAP, it is a different language and even if the U.S. takes a slow road to adoption, learning the language is a must for any CPA that wants to be able to converse in the business world.