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Surrounded and Still Standing – The CPA in Today's World By Steve Ernst, CPA  We
all have a tendency to think that the times we are experiencing are
unique, if not historic, in significance. Whether it is world events,
politics, weather, sports, the Dow-Jones Industrial Average or the
scope of international business, it all seems to be "the first
time for this" or "the last time we'll see that." Those
of us in the accounting profession currently face some issues that
certainly seem as significant and historic as any we've encountered.
Over the last month I have participated in several industry events and watched the progress of standards efforts that will significantly impact CPAs wherever they do business. Let's take a look at them and then connect the dots. Complexity SAP is the exclusive sponsor for the AICPA's quarterly "CFO Roundtable" webcast. The most recent webcast covered the topic of Financial Accounting Standard (FAS) No. 157 – Fair Value Accounting. A number of SAP Partners around the country hosted the webcast for CPAs in their communities. At one of the SAP-hosted events I attended, the CPAs – after two hours of expert presentations, commentary and Q&A session 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 CPAs' comments were consistent – while it may have been theoretically understandable, it was tactically and practically unreasonable. Their overall response: it was anywhere from implausible to impossible to implement such a standard on a consistent basis across industries and companies. As the CPAs discussed this particular FAS, they indicated they knew what would come next: multiple revisions and updates. None of these would simplify their work, but rather burden them under more and more explicit examples and prescriptive calculations for any number of variables. Convergence But the reaction of CPAs to FAS 157 only scratches the surface of where we find ourselves with the current issues surrounding US GAAP. Earlier this year, I attended a session on the FASB and IASB efforts to converge U.S. GAAP with International Financial Reporting Standards (IFRS), used by nearly 100 countries around the world. This has been going on since 2002. Although these efforts have been slow and ponderous, some have described them as surprisingly cordial and collegial. Me? To me, the term "convergence" connotes two different images. It can either represent a freeway entrance where traffic merges smoothly and then gains speed. But two trains heading in opposite directions on the same track can also converge on one another. I'm not saying the SEC envisions a train wreck, but its actions over the last three months lead me to believe they want to do something to make the process more akin to the former image than the latter. The SEC has operational and budgetary oversight and control over the FASB and its parent, the Financial Accounting Foundation. It also has oversight over the PCAOB and, therefore, over guidance and pronouncements covering the conduct of audits by CPAs serving publicly traded clients. With its standard-setting power codified, it's ready to push convergence rather than wait for the FASB/IASB process to reach fruition. The key word in GAAP is "principles," and that's where the SEC wants to head at a high rate of speed. It believes that IFRS is more principles-based than GAAP. In June, the SEC proposed allowing foreign companies listed in the U.S. to file using IFRS. 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. Then, in early August, the SEC released a 72-question concept paper for public response and comment, in which the commission asked if it would be appropriate at some time in the future to require all U.S. registrants to report their financial statements using IFRS. The SEC is essentially asking if allowing or requiring the use of IFRS by foreign registrants and/or U.S.-based registrants would lead to an end of the FASB/IASB convergence project. The answer is, of course, yes. Even the chairman of the FASB called for a concrete and expeditious plan to move U.S. companies off of GAAP and onto IFRS, in late September. Coming from the FASB – which has been put in charge of the convergence project – this seems to be a dramatic shift in the intensity applied to the IFRS effort. This is the historically significant part. 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 apply principles-based standards to our individual situations. We're talking about a whole different set of standards to be used worldwide. 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 – this effort will nonetheless make the above issues even more complex and more difficult to absorb and manage as a CPA. On the inside looking out As difficult as these collective and seemingly conflicting efforts are, we will work through them. We're fortunate to belong to a discipline that is populated by true professionals. I've always felt that way but even with the aforementioned changes transpiring, I'm even more convinced of our ability to adapt, overcome and continue to serve our clients. In fact, we will probably look back on and say that it seemed historic at the time, but it turned out to be not that big a deal. |
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