AICPA President and CEO Addresses Issues Facing Accounting Profession

Barry Melancon, president and CEO of the AICPA, spoke recently about the top issues affecting the CPA profession. Following is a Q&A in which Melancon explores tax preparer registration, fair value accounting, regulation, IFRS and other topics.

17. Recently, IRS Commissioner Shulman said he is planning to propose regulations on tax preparation services, which likely will include required registration for unlicensed tax preparers. It is not clear whether CPAs would need to register since they already are regulated by state boards of accountancy. What is the AICPA’s position?

1. We have been monitoring this issue for several years as such regulation or legislation has been suggested to Congress before. While no specifics for the proposals have yet been outlined, the AICPA will work closely with IRS Commissioner Shulman and his staff as they move forward. We support the same two goals as the IRS:increased compliance and adherence to high ethical standards. We have publicly expressed concerns about previous attempts to regulate tax preparers and we hope the IRS will avoid the pitfalls of those past efforts. We also believe the IRS should consider using existing tools and processes to achieve these important goals.

17. Fair value accounting was a hot topic in Washington. Where did the AICPA stand on this issue?

1.  It would have been impossible to be in Washington earlier this year without fair value accounting being a significant part of a discussion. Let me be clear on our comments and on our position. We do not believe mark-to-market accounting was the cause of our country’s financial and economic situation. In fact, we believe fair value accounting, where currently required, improves the transparency of companies’ actual activities and results for investors. In addition, we adamantly support private-sector, independent standard setting, and believe that government should not be in the business of setting accounting standards. That has been a decades-long AICPA position. The private sector has many avenues for people to raise issues and ask for clarifications and changes, and it remains the best place for that to be resolved. The general consensus supported the notion of additional guidance and clarity on fair value accounting, leading to the three relevant FASB Staff Positions. These are very complex issues. 

17. Speaking of using judgment, are we any closer to having a firmer deadline for when International Financial Reporting Standards will come to the U.S.?

1. Obviously, today’s economic environment causes people to take a look at the timing and the movement to IFRS. We continue to believe that a single set of high quality, globally accepted standards for public companies are very important. As far as IFRS for public companies, SEC Chairwoman Mary Schapiro has made comments in the recent past about taking a reasoned look at IFRS adoption. One of the points that we have made, consistent with the comment letter we provided to the SEC on its proposed road map, is that a lot of the events that need to happen in the system for the U.S. to move to IFRS will not happen until we have a date certain for adoption. Some things can be done beforehand, but a lot of the things like systems and training simply won’t. Businesses will not put the time, effort and manpower into readiness until there is a date certain. Our letter to the SEC indicated that if its decision is to be made in 2011, then 2014 might be too short a timeframe. If the SEC wants 2014 for an implementation date, it may need to look at an earlier decision than 2011. The timeframe and decision point are codependent on each other. We do plan to have IFRS questions in the CPA exam no later than 2012. That is part of the readiness process that’s in the road map, and we are committed to that.

   On the private company side, the International Accounting Standards Board issued its IFRS for Small- and Medium-Size Entities (IFRS for SMEs) on July 9. This development provides another reporting option for U.S. private businesses.

17. Can you elaborate on the concept of judgment and the importance it plays in current developments?

1. Let’s take IFRS. Preparers and auditors will need greater capacity for judgment-making in the accounting area. IFRS standards are much less rules based, which means CPAs can come to slightly different answers regarding similar circumstances. Regulators will need to have a tolerance for that and support professional decisions. In fact, a major recommendation of a special SEC committee last year addressed the issue although it hasn’t yet been adopted as a policy statement. There has to be trust in the accountants’ process. Regulators have the benefit of 20/20 hindsight. Preparers and auditors are going to be much more hesitant to apply judgment unless they know it will be supported in a look-back.

17. Can you explain XBRL and the impact that will have on financial reporting?

1. XBRL is a language for the electronic communication of financial and other business data that gives management, individual and institutional investors, and regulators better access to information. It facilitates analysis, transparency, timeliness and dissemination of information for better decision-making across the board. I like to make this comparison: XBRL is doing for financial reporting what barcode technology did for consumer goods. We are gratified that the SEC issued the final rules, and XBRL filings are now being phased in as a required format for public companies. Additionally, XBRL can be leveraged beyond financial reporting to a broader footprint – for process improvements in reporting in all areas of the private and public sectors and at the local, state and national levels.  This potential is exemplified by pilot programs put in place under the leadership of Nevada Controller Kim Wallin, who foresees greater efficiency and enhanced transparency through the use of XBRL for tracking grants and other financial information.

17. Financial reporting has been given a lot of attention lately. What is the profession doing to enhance the transparency of financial reporting?

1. We believe that consideration of a company’s “key performance indicators” (KPIs) is critical to improved overall financial reporting and enhanced transparency in business. KPIs were recommended by the SEC’s Advisory Committee on Improvements to Financial Reporting. Work is being done in the U.S. through the Enhanced Business Reporting Consortium in which the AICPA participates. And it is also being done on a global basis through a group we participate in called the World Intellectual Capital Initiative. This group is working on the development of common definitions for key performance indicators, which would be helpful on the world stage for businesses and their stakeholders.

17. What do you think about government proposals to create a systemic risk regulator?

1. President Obama has proposed a “council” of financial service regulators to oversee systemic risk. And some congressional leaders have voiced support for such a regulator. Exactly how it might be structured remains to be seen as the House and Senate work on their versions of the systemic risk regulator. Clearly,    many companies and financial transactions are linked in a way that the failure of one can cause significant problems for many other companies. We have found that as we looked at financial reporting in today’s economic situation, this interconnectivity creates a greater systemic risk broader than the borders of any one particular company.

17. What is the reaction to two representatives on the Financial Services Committee proposing to create a federal accounting oversight board, which would be like a completely new overseer for the profession?

1. Currently, there doesn’t seem to be a focus on that proposal. However, the issue of fair value accounting, which drove this legislation, had a very high profile earlier this year. Only a few years ago, we saw the issue of expensing stock options gain enough steam to have a high-profile hearing on the issue in the House Financial Services Committee. It is likely that other accounting issues will reach a similar profile in the future. The AICPA remains committed to the concept that accounting rules are meant to protect investors by providing transparency in financial reporting, and not be in place to bolster the balance sheets of companies. We will continue to be vigilant in working to stop both direct attempts to change accounting rules, and indirect attempts, such as the accounting oversight board.