Auditing is at the very core of our profession; only CPAs are authorized by law to conduct financial statement audits. In today’s business environment, entities are increasingly interdependent and information and accountability have assumed a larger role in society. As a result, the CPA’s independent audit of an entity's financial statements is a vital service to investors, lenders, sureties, businesses, regulators and other participants in the marketplace. Mergers, acquisitions, the capital markets and credit sources depend not only on the information that management provides in financial statements, but also on the CPA’s audit opinion as to whether the financial statements are free of material misstatements, whether caused by error or fraud.
What opportunities and challenges does the head of the AICPA foresee for the CPA profession in 2014? What were the profession’s significant achievements in 2013? Barry C. Melancon, CPA, CGMA, AICPA president and CEO, answers these questions and offers insights on how the profession will continue to adapt to today’s changing environment, addressing clients’ and employer’s needs. Citing successes with regulation, legislation, recruitment and positioning the profession for the future, Barry strongly believes CPAs will build on a solid foundation.
1. What were the AICPA’s legislative or regulatory priorities this past year and what’s in store for 2014?
We continued to have success in the advocacy area in 2013. In one significant victory for the profession and the public, the Securities and Exchange Commission exempted CPAs from registration as municipal advisers when they are providing certain accounting or attest services. We urged the SEC to exempt CPAs from the definition of municipal advisers after it had indicated that anyone performing accounting services for governments would be defined as a “municipal adviser.” It was critical that our voices be heard on this issue because such a broad definition would have made it more difficult for CPAs to serve governments and potential investors without taking on unnecessary and duplicative costs or compliance burdens.
In celebration of the AICPA’s 125 anniversary last year, we produced a powerful retrospective called Evolution of a Profession. The six-minute video traced the accounting profession’s changes from its origins 8,000 years ago through the present day.
Within that evolution were the notions of currency and exchange. Over time, society has changed the various ways goods and services are purchased. Hard as it may be to believe, at one point the primary currency was clams. The same is true of livestock, land and spices. All eventually gave way to something else as our forms of money have been “refined” over and over again.
Four years ago, a new alternative currency emerged and the accounting profession needs to watch how it develops going forward. It’s a virtual currency known as Bitcoin. Dozens of virtual currencies exist but Bitcoin has garnered the most attention. The news media has been covering the currency in earnest since the spring, including its growing acceptance among businesses and even a foreign university.
What does that mean for our profession? First, if Bitcoin were to become a mainstream currency option, firms would have to consider clients using Bitcoin as a form of payment for services, and a business might want to accept Bitcoins for purchases of its products.
More broadly, how might financial statement preparation and assurance on those statements need to adapt? Bitcoin is not only a currency, it is also a commodity – one with a finite supply (currently 12 million units and continually increasing to a maximum of 21 million units). Therefore, depending on the demand for it at any given time, its value could fluctuate wildly – even within the same day. In 2013 alone, a single Bitcoin unit was valued at less than $20 and hit a high of more than $1,000 in late November. So, how would a CPA value that money, and is it even an asset? And since Bitcoin largely operates through online exchanges, it functions outside of the traditional banking system, where balances and transactions can easily be confirmed. In terms of taxes, the Internal Revenue Service has said Bitcoin transactions could fall under several categories: property, financial instrument, foreign currency or barter.
AICPA Enhances Tools to Assist CPAs with Implementation
Private company financial reporting has evolved more in the past year or so than during the previous four decades. In June the AICPA issued an accounting framework for smaller, owner-managed businesses that do not need financial statements based on U.S. generally accepted accounting principles, and the Financial Accounting Foundation’s Private Company Council has proposed alternatives within GAAP for private entities. Both the framework and the PCC have the same goal of improving financial reporting for private companies and both are critically important, as private companies represent the vast majority of the businesses comprising America’s non-governmental economy.
Many owner-managed companies are small or micro in size. They often are called Main Street businesses, mom-and-pop shops or suburbia’s business districts. The AICPA’s Financial Reporting Framework for Small- and Medium-Sized Entities was designed to serve this segment. The FRF for SMEs framework presents the small business community with an opportunity for robust and relevant financial statements that are simplified and cost efficient when U.S. GAAP is not required as a basis of accounting.
Businesses and individuals trust CPAs for their objectivity, integrity and independence. Those characteristics are what the public also values in elected officials, so we are fortunate that a growing number of CPAs are involved in state, local and federal government.
This year, two more CPAs were elected to Congress: Rep. Tom Rice (R-SC) and Rep. Patrick Murphy (D-FL.). That makes a total of 10 CPAs in Congress, plus an additional two accountants in the Senate.
When a CPA alerts an individual or an organization to a problem, it’s usually wise to heed the financial advice. CPAs figure out the meaning of numbers every day and are accustomed to giving guidance on complex financial situations.
Once again, CPAs are informing America that the federal budget numbers tell an alarming story. In an online survey conducted by the AICPA in December, three-quarters of CPAs said immediate action is needed to quell spiraling federal budget deficits. More than half identified deficit reduction as the top economic priority for the United States, ahead of creating jobs (23 percent), tax reform (18 percent) and ensuring the long-term stability of Social Security and Medicare (5 percent).
Most Americans greeted the news that the “fiscal cliff” had been averted with a mix of relief that a worst case scenario had been averted and frustration with the seemingly endless process. What has been lost on some casual observers is that, as a result of the deal, the U.S. deficit will actually increase an additional $4 trillion dollars in the next decade, according to the Centralized Budget Office.
Earlier this week, the AICPA released the results of a survey* asking members questions regarding the economic sustainability of the United States. The survey found that the vast majority are calling on the federal government to demonstrate more fiscal responsibility. In fact, seven in ten U.S. CPAs are concerned that both individuals and families will be severely affected if policy makers are unable to reduce the federal debt.
The following is an interview with AICPA President and CEO Barry Melancon, CPA, CGMA. He was asked to share his thoughts about some of the major issues and trends that will affect CPAs in 2013.
In the coming year, we will see the first efforts of the Private Company Council. What changes can CPAs and the companies they serve expect to see?
The Financial Accounting Foundation’s Private Company Council was created to address issues affecting companies that need GAAP-based financial statements. The PCC only recently began meeting, and will be weighing in on existing standards and ones in development. Private company accounting stakeholders are expecting prompt action by the PCC in modifying GAAP to bring more relevance and simplification to financial reporting.
The 2012 presidential election is just around the corner. While it’s not clear who will win the White House, there are many reasons you should be paying close attention. And we’re seeing indications that you’re doing just that. In a CPA Letter Daily poll on Oct. 16, 65% of more than 3,200 respondents said they would be watching that night’s presidential debate.
There is no shortage of issues affecting CPAs and our clients or employers. Highlighted below are some of the important financial issues facing our country:
David McCann at CFO.com spoke with Arleen Thomas, CPA, CGMA, AICPA SVP of management accounting, about a recent talent management survey for Chartered Global Management Accountants conducted jointly between the AICPA and the Chartered Institute of Management Accountants by the Economist Intelligence Unit. The report found that 43 percent of the CEOs, CFOs and human resource directors surveyed said their companies have missed financial goals in the past 18 months because of inadequacies in human capital management. Almost the same number, 40 percent, indicated that such shortcomings—which could include insufficient systems, processes or management information—have hindered their ability to innovate. “We believe that talent and the human dimension drive business growth and companies haven’t focused enough on that,” said Thomas. “Too many companies look at talent in terms of what they have to do to comply with labor laws and regulations, rather than understanding that it can be a competitive differential.”
It is difficult to ignore the tremendous growth in information technology that has been occurring over the last few years and how it is transforming business. Technology is enabling data to be captured at a volume and prevalence never imagined. Among social media sites, websites, smartphones, customer profiles and purchase information, it seems that just about every part of our business or personal lives provides information about ourselves that someone is collecting. But where does it all go? What happens to it? How can you turn this data into something meaningful, and more importantly, profitable?
Information like this is called “Big Data” and Big Data has been a high-profile topic in business media and even the mainstream press. It refers to data sets that grow so large that they are nearly impossible to work with using traditional database management tools, but yet offer a powerful tool when married with strategic use. Big Data has been called “The next frontier for innovation, competition and productivity.”
A few weeks ago, I shared with you my (reasonable and totally understandable) enjoyment of data points and survey results in all their shapes and sizes. I have also always been a huge fan of The Ethicist column in the New York Times Magazine, and put serving as ‘The Ethicist’ near the top of my dream jobs list. Needless to say, the recent results of the global business ethics survey from the AICPA and the Chartered Institute of Management Accountants were right in my wheelhouse.
It’s encouraging to see that four out of five businesses worldwide report that they have committed to ethical performance. But according to Managing Responsible Business, a global survey of almost 2,000 CGMAs, the rhetoric does not always match the reality. While 80 percent of organizations provide a code of ethics to employees, only 36 percent collect ethics information such as the number of employees attending ethics training and actions taken on hotline reports. The report suggests that companies need better processes to really operationalize their ethics programs.
Many of you have seen news reports and AICPA communications about the Financial Accounting Foundation’s recent decision to create a Private Company Council. Given the serious concerns the AICPA had with FAF’s original proposal released in October 2011, I am providing additional detail as to the structural and process improvements FAF made with the new Private Company Council that enable us to support it.
The AICPA’s issue with FAF’s proposal centered on the extent of the Financial Accounting Standards Board’s influence on the planned private company body and ratification of its decisions. We and more than 7,000 stakeholders urged FAF to strengthen the original council’s independence and they responded. The final plan is more about collaboration between the PCC and the Financial Accounting Standards Board than the approach outlined in the exposure draft. Now, FASB will be asked to endorse the PCC’s recommendations rather than ratify them and generally will have a limited time frame of 60 days to do so. I would describe the process as one of negative clearance, with a high threshold for a FASB veto. And if FASB does veto the PCC’s decision, the FASB chairman has to explain why in writing – and provide suggestions for obtaining approval – and it will be made public for stakeholders to evaluate.
As the AICPA gears up for our 125th Anniversary next week, here’s a wrap up of a few interesting accounting topics recently making the news. You can follow @AICPANews on Twitter to stay on top of all the latest official AICPA news as well as articles impacting the profession.
CFO.com wrote that the AICPA raised concerns over the Investment Adviser Oversight Act of 2012 and urged Congress to keep oversight of investment advisers with the SEC. Introduced in the House of Representatives on April 25, the bill would transfer oversight of investment advisers from the SEC to a self-regulatory organization."Many of our members work for a firm that is registered as, or affiliated with, a registered investment adviser," Barry Melancon, CPA, CGMA, AICPA president and CEO, said in a statement. The AICPA's stance is that the system proposed under the bill would cost advisers much more in fees than current SEC oversight would.
On January 19, 2011, the SEC issued a staff report that found the current SEC-registered investment-adviser examination program faces hefty capacity and funding challenges. Three options were proposed to offset these challenges. One would be to impose "user fees" on SEC-registered investment advisers to fund oversight. A second would authorize one or more SROs to examine investment advisers, with oversight from the SEC. A third choice would be to authorize the Financial Industry Regulatory Authority, a leading broker-dealer SRO, to examine dual registrants for compliance with the Investment Advisers Act of 1940. All three options require congressional action. "We believe that the SEC's core mission to protect investors requires adequate regulation of the investment advisory profession. The SEC remains the proper regulatory body to protect the public's best interest." Melancon said, "Providing the SEC with resources to properly enforce their rules is the best solution for investors and the public."
We’ve got a lot of big things on the horizon at the AICPA: April Financial Literacy Month (we’ll be releasing survey results on the financial state of Americans) and in mid-May, we’ll be celebrating the 125th Anniversary of the AICPA at our Spring Council meeting in Washington D.C.
Which is not to say that we’ve haven’t been busy lately! Just in the last week we released the results of our CGMA Global Economic Forecast and Barry Melancon, CPA, CGMA, president and CEO of the AICPA, testified before the House Capital Markets Subcommittee Accounting and Auditing Oversight Hearing. Melancon told members of the subcommittee that AICPA supports a strong, balanced and independent regulatory structure that protects investors but does not restrict the flow of capital.
During busy season and year-round, you can keep abreast of all the most important AICPA news by subscribing to the Media Relations RSS feed or following @AICPANews on Twitter. On to news of note from the last few days.
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There has been quite a bit of legislative and regulatory activity over the past few months regarding Sarbanes-Oxley Section 404(b), which requires public companies to have an independent auditor attest to management’s assertions on internal controls over financial reporting. I want to bring you up to date on recent developments and the AICPA’s position on the issue.
Currently, an exemption exists for issuers with a public float of less than $75 million, a provision enacted as part of the 2010 Dodd-Frank Act. These smaller issuers were never required by the Securities and Exchange Commission to comply with Section 404(b) since enactment of SOX. However, legislative, regulatory, business and economic influences are combining to apply pressure to extend the exemption to larger public companies, believing it would reduce reporting burdens and spur job growth. The AICPA has consistently urged implementation of Section 404(b) for all publicly held companies. It has led to improved financial reporting and greater transparency, and the AICPA believes all investors in public companies should have equal benefit of the same protections.
AICPA Insights live blogged from the interactive business forum celebrating the launch of the Chartered Global Management Accountant on January 31. Follow the real-time event as it unfolded in New York and London and was viewed live in other regions around the world. A launch event in Kuala Lumpur took place earlier in the day. The CGMA was established through a joint venture between the AICPA and the Chartered Institute of Management Accountants.
If you’ve watched the news, picked up a paper (or read one on your electronic device) or listened to the radio in the past year, you’ve probably heard about America’s debt, its bond rating and political gridlock.
Instead of telling you what fiscal challenges our country is facing, I think it’s better if you understand them for yourself. Today, I’m encouraging each of you to spend a few minutes taking a short quiz that will test how well you understand the financial matters being discussed in Washington, D.C.
During this past year, the AICPA’s Immediate Past Chairman, Paul Stahlin led the call for our members to participate in CPA Horizons 2025, a grass-roots initiative aimed at examining the local and global trends that will have an effect on our profession over the next 15 years. Your response was tremendous. Nearly 6,000 CPAs voiced their opinions and generated more than 75,000 comments. I thank you for all your insights on how to shape our future.
CPA Horizons 2025 built on the knowledge we gained in the CPA Vision Project, a similar effort conducted in the late 1990s. Participants concluded that the core purpose for CPAs identified back in the 1990s—CPAs: Making sense of a changing and complex world—remains relevant now and for the future. The participants also believed that the core values and competencies identified in the CPA Vision Project are still valid, and were updated to reflect changing circumstances. While the CPA Vision Project also identified some core services, CPA Horizons 2025 determined that the knowledge, skill and competencies CPAs have to offer have become so varied and diverse that the concept of core services is no longer valid.
For quite a while now, decades in fact, the accounting profession has been discussing the problems faced by private companies and the users of their financial statements because of a lack of relevance and unnecessary complexity in too many places in U.S. GAAP. The Blue Ribbon Panel on Standard Setting for Private Companies made recommendations earlier this year that gave us a greater sense of hope that real change was on the way. The Panel, formed by the AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy, came out with two significant recommendations that would permanently change private company financial reporting. One is differences in existing and future GAAP where warranted; the other is an independent board to set those differences. There is general consensus on the former; I want to focus on the latter.
It was a five-year battle, but working together the AICPA and state CPA societies were gratified when President Obama on Sept. 16 signed into law a bill that includes a provision to prevent the issuance of new patents on tax strategies. We asked so many of you to send letters, and state CPA societies and members responded each time. Details on the harm tax patents could cause are discussed in this AICPA Insights blog post.
Tax strategy patents now become one of only a handful of patent types that the Patent & Trademark Office is prohibited from issuing, which includes medical procedures, nuclear technology and, now, tax strategies.
I would like to thank each of the AICPA staff, members, states, committees and others who participated in this advocacy effort, which marks a huge victory for both the public and the CPA profession.
It is important to note that existing tax strategy patents remain in effect so tax practitioners still need to remain vigilant. Patent applications pending as of Sept. 16 were discontinued and no new applications are allowed.
This victory shows the positive results that stem from collaborative and persistent efforts when it comes to getting legislation enacted. Congratulations to those who played a part in this process. On behalf of taxpayers and the profession, I thank you.
Barry C. Melancon, CPA, President and CEO, American Institute of CPAs.
Polls in CPA Letter Daily offer an insight to the readers’ opinions about topics taking place in today’s world.
Last week’s poll question, with nearly 500 responses: Does your organization have a formal succession plan in place?
There’s a saying that the best time to plant a tree is twenty years ago. The second best time is now.
For many years, the AICPA has been encouraging firms of all sizes to take a serious approach to and place a heavy focus on succession planning. With 44,000 firms in the U.S., combined with an aging population, it’s simply an imperative. I’ve seen many firms that are so busy taking care of “today” that they never get around to planning for tomorrow.
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Recently, Apple demonstrated the importance of having a succession plan when CEO Steve Jobs stepped down, amid health concerns. His sudden announcement triggered a plan that was put in place well before his health forced him to step down. This preparation allowed Apple to seamlessly transition to new leadership and continued success. This plan was well communicated to employees and investors for months, reducing the potential for negative reactions. Examples like this, unfortunately, are the exception, rather than the rule.
In the last month, another event led me to believe that awareness regarding succession planning is both timely and needed, especially in the case of an unexpected life event.
The world is getting smaller. It becomes more apparent with each passing day. The ongoing unrest in Libya, the economic crisis in Greece, and our own difficulties with the debt ceiling have each caused global markets to fluctuate wildly. What does this tell us? For one, it makes it increasingly clear the business world is now global. Second, it shows that most U.S. businesses need to think internationally and integrate that thinking throughout their operations to achieve economic success and long-term viability.
Businesses used to operate within their own cocoon, impervious to events outside their countries’ borders. But now, each of us must implement strategies enterprise-wide that reflect the new environment.
Anytime you have a “first” of anything it’s an important and memorable occasion. With that in mind, my first topical blog post is on a subject I believe is critical to our profession, those we work for and those we serve. I’m talking about private company financial reporting.
Few opportunities exist where a person can say they took part in something truly historic. CPAs, their clients and employers, bankers and other stakeholders have such an opportunity before them today, and it all starts with a letter. For more than 30 years, CPAs, lenders, private company owners, investors and others have said U.S. GAAP mainly reflects the public company environment, resulting in unnecessary complexity and a lack of relevance for private company financial statements. We’re now closer than we’ve ever been to changing this, and you have the ability to push this across the goal line - finally.
Feedback and exchange are essential components of communications today. And not just between a writer and a reader, but among the readers themselves. Through this interaction, a community is formed. A leader in social media usage by professional organizations, the AICPA has taken another step in providing a community platform among members and others through AICPA Insights, our new blog.
AICPA Insights will provide thoughts and opinions from experts about issues affecting the Institute, CPAs, the clients we serve and the businesses we work for. Our bloggers are members of the AICPA staff, and I’m sure they’ll bring a unique perspective to today’s issues. We’ll also feature guest bloggers covering a wide range of issues.
Later this week you’ll hear about efforts in developing an integrated reporting framework from our Business, Industry and Government team. My next post will focus on private company financial reporting, which I believe is one of the most important issues facing our profession and America’s small businesses and their financial statement users.
I’m excited about our new blog and look forward to all of you engaging in thoughtful discussion. I encourage you to write comments and share posts with colleagues to bring diverse views and experiences that will enrich our knowledge and perspectives.
When I became AICPA President and CEO back in 1995, we could not have imagined the technologies that someday would give us such incredible access to each other. Let’s build on the functionality and develop a robust conversation on everything important to all of us.
Thank you and enjoy.
Barry C. Melancon, CPA, President and CEO, American Institute of CPAs.