In the News: Private Company Standards are Coming

The big accounting news this week was the Financial Accounting Foundation’s Wednesday announcement that it was creating a body to set differences in U.S. generally accepted accounting principles, where appropriate, for privately held companies. The private company standards set by the new Private Company Council might make it easier for the roughly 28 million privately held companies in the United States to follow certain accounting standards.

The AICPA announced its support for the Private Company Council on Wednesday shortly after the news broke.

Barry Melancon, CPA, CGMA, president and CEO of the AICPA, spoke about the developments in a video to members.

“With the news announced today by the FAF, we recognize and appreciate that the FAF has taken solid steps in the right direction regarding the Private Company Council. The AICPA is encouraged by this approach and awaits more of the details of the FAF decision.  We look forward to continuing to work together to effect meaningful changes in U.S. GAAP for private companies and the users of their financial statements,” said Melancon,

The Future of Broker-Dealer Audits

The AICPA has a long history of advocacy on behalf of the public interest, including investors and the markets. Our advocacy regarding the regulation of the auditors of broker-dealers is a good case in point.

Under the Dodd-Frank Act, the Public Company Accounting Oversight Board was given the authority to conduct inspections of auditors of broker-dealers.  The AICPA has strongly supported inspection of auditors of broker-dealers that clear, carry and have custody of client funds, given the serious consequences for investors and markets when fraud occurs at these entities. The Institute does not believe, however, that PCAOB registration and inspection should apply to the auditors of introducing or non-carrying broker-dealers, who have no or very limited access to client funds and, as a result, do not pose the kind of risk to investors or the markets that would warrant PCAOB oversight.

Proposed SOX 404(b) Changes Could Add to Investors’ Risks

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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.

The Watchful CPA: Risks of Theft and Fraud

Audit claims alleging failure to detect theft and fraud are not new.  However, their frequency and severity are increasing dramatically.  Between 2008 and 2010, the percentage of audit claims alleging failure to detect fraud and theft more than doubled, from 30 percent to nearly two-thirds of all audit claims.  Equally alarming, many claims arising from tax, bookkeeping, compilation and review engagements now include similar allegations.  By 2010, among all claims alleging failure to detect theft and fraud, 24 percent emanated from tax services, 17 percent from compilation and review services, 11 percent from accounting and other services, and 4 percent from investment advisory services. The remaining claims involved audits.

What’s the Future of IFRS in the U.S.?

A couple of weeks ago at the AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C., James Kroeker, chief accountant at the Securities and Exchange Commission, provided an update on the status of the SEC’s decision on whether and how to incorporate International Financial Reporting Standards into the U.S. financial reporting system for public companies. If you were hoping for the SEC to provide a definitive timeline, then you’re not going to be happy. Kroeker stated that the SEC is still at least a few months away from a decision. Previously the SEC had stated that a decision could be expected in 2011. However, SEC staff are still writing a final report on IFRS that will help guide the SEC’s decision and, presumably, a timetable for incorporation of IFRS in the U.S.