Surrounded and Still Standing – The CPA in Today's World
By Steve Ernst

We all have a tendency to think that the times we are experiencing are unique if not historical in significance. Whether it is world events, politics, weather, sports, the DJIA, or the scope of international business, it all seems to be "the first time for this" or "the last time we'll see that." To be truthful, I believe the accounting profession is facing some issues if not surrounded by issues that are as significant and as historical as any we've faced.

Over the last month I have been involved in a couple of events and have seen projects progressing that have and will significantly impact CPAs wherever they reside in the business community. Regardless if the CPA is in public practice or in business/industry, government or an academic. Regardless of the size of clients they serve or whether or not those clients are public or privately-help concerns, today's issues are daunting and will change the shape and future of the profession. The events and projects were not directly related except for the fact they would impact the CPA community in the US and I have found this to be both troubling and instructive. As a way of generalizing, I'll refer to them as "Complexity," "Convergence," and "Co-GAAP." Let's take a look at them one at a time and then connect the dots.

Complexity
SAP is the exclusive sponsor for the AICPA's quarterly "CFO Roundtable" webcast. The most recent webcast last month covered the topic of FAS No. 157 – Fair Value Accounting and a number of SAP Partners around the country hosted the webcast for CPAs in their communities. The CPAs participating came from all the segments of the profession and those in public practice came from firms of all sizes. At one of the SAP-hosted events I attended, the CPAs there, after two hours of extremely expert presentations, commentary and Q&A within the webcast, were shaking their heads. When we discussed the content of the webcast and the impact of a pronouncement such as FAS 157 the comments were consistent. Theoretically understandable, tactically and practically unreasonable, implementatioally implausible to impossible on a consistent basis across industries and companies.

FAS I57 and the reaction of CPAs to what they have to do with it and about it is emblematic of where we find ourselves with the compendium of US GAAP. Overly prescriptive, a cookbook that can't be used in every kitchen. A morass of detail that is continually amended, interpreted and elongated. As the CPAs discussed this particular FAS they indicated they knew what would come next, the first of many revisions and updates none of which would be a simplification but, rather, more and more explicit examples and prescriptive calculations for variable after variable. This is the world of GAAP as it surrounds the CPA community today.

Convergence
Earlier this year, I attended a session on the FASB's and IASB's efforts to converge US GAAP with the international financial reporting standards (IFRS). This effort to combine or meld the two sets of standards has been ongoing since 2002. Although slow and ponderous, some have described the efforts as surprisingly cordial and collegial. Me? I have two views on the term "convergence." One is an image of an interstate highway on ramp where traffic converges and continues to flow and gain speed. The other image of convergence is that of two trains on the same track heading toward each other. I'm not saying the SEC envisions a train wreck but their actions over the last 3 months leads me to believe they want to do something to speed the process in order to avert that potential collision or impasse. The SEC has tacitly won the battle of the institutions to set GAAP in the US. They have operational and budgetary oversight and control over the FASB and its parent, the Financial Accounting Foundation and the SEC has oversight over the PCAOB and, therefore, over guidance and pronouncements covering the conduct of audits by CPAs serving publicly-traded clients. With this standard setting power set in legislation and prevalent, widely-help practice, it's ready to push convergence rather than wait out the FASB/IASB process and risk the impasse it will have to resolve in any case.

The key word in GAAP is "principles" and that's where the SEC wants to head and head in that direction at a high rate of speed. In June, the SEC proposed allowing foreign companies listed in the US to file using IFRS. The precept is IFRS is more principles-based than GAAP. A week later, the SEC's chief accountant announced the commission would release a concept draft for allowing domestic companies to file using the IFRS. That was just the beginning. In early August, the SEC released a 72-question concept paper for public response and comment. In raising the stakes of the July proposals, the commission asked if there could come a time when it would be appropriate if not necessary to require, not just allow but require, all US registrants to report their financial statements using IFRS. The SEC is asking if allowing or requiring the use of IFRS by foreign registrants and/or US-based registrants would lead to an end of the FASB/IASB convergence project. In other words, does it get dark when the sun goes down? These actions and the idea of a single set of global standards were amplified in late September when the chairman of the FASB called for a concrete and expeditious plan to move US companies off of GAAP and onto IFRS. Coming from the FASB who has been charged with the convergence project, this seems to be a dramatic increase in the intensity applied to this effort.

You say, hey, what's the big deal, we're talking about publicly-traded companies here, my company or my client is private, we or they won't be impacted or affected. Yes they will be and so will you. We're talking about changing the way we all report our financial position and results. We're talking about a near tectonic change in the way we are allowed to apply principles-based standards to our individual situations. We're talking about judgment once again being inserted into the process and we're talking about a whole different set of standards to be used world-wide and, if you purport to present your or your clients financial statements in a generally accepted and consistently applied framework, you'll use what the world uses regardless of your public or private profile.

Co-GAAP
The above doesn't even touch on the "GAAP for Private Companies" project undertaken by the AICPA and its Private Company Task Force. The conclusions reached as a result of the task force's research point to a need for a separate and distinct set of reporting standards for private companies. Regardless of your stance on this issue, and those that have read my columns in this newsletter know that I feel the need is overstated and the negative impact of private company GAAP understated, you can't argue that this effort will make the above issues even more complex and even more difficult to absorb and manage as a CPA.

On the Inside Looking Out
I'm fortunate to belong to a profession. A discipline that is populated by true professionals. I've always felt that way but, in today's world, as partially described above, I'm even more convinced of the ability to adapt, overcome and continue to serve our constituents. These are times that we will look back on and say "how did we survive that" at the same time we will probably say "that wasn't that big of deal, was it?"

Steve Ernst, CPA, leads the SAP CPA Advisor and other influencer programs for SAP America, Inc. Prior to joining SAP, Steve provided consulting services to boards and executive staff on accounting, auditing, business processes, and internal control systems, as well as sales, marketing, and business development initiatives. He has more than 30 years of experience, including 10 years with PricewaterhouseCoopers LLP and more than 20 years in international finance and operations in the consumer product and technology markets. You can contact him at steve.ernst@sap.com.