Be Prepared for Major Changes in Key GAAP Standards

Get ready to tackle some major revisions in accounting standards. After years of consideration, the Financial Accounting Standards Board is finalizing its approaches on three major issues: revenue recognition, leases and financial instruments. Each of these accounting areas affects virtually all companies in the United States no matter what their size or whether they are public or nonpublic. And that means virtually all CPA firms are affected too.

From an advocacy standpoint, the AICPA continues to monitor the progress of these important standards and to comment on the exposure drafts on members’ behalf. Our goal is to help make sure the standards are effective and can be implemented with as much ease as possible. Moreover, the AICPA will help members understand and implement the new standards so they can continue to provide high-quality services and comply appropriately with the rules.

Herz: Financial Reporting Triumphs and Challenges

Were there warning signs of the worldwide financial crisis and global recession?
Could the addiction to off-balance sheet accounting have been stopped?
How could contentious reporting issues have been better resolved?

From the reporting scandals of 2001 and 2002 to the recent global financial crisis and efforts at international convergence of accounting standards, former Financial Accounting Standards Board Chairman Robert Herz discusses critical issues and much more in his new book, Accounting Changes: Chronicles of Convergence, Crisis, and Complexity in Financial Reporting. Herz tells the story from the perspective of his front row seat on many of the major developments affecting accounting and financial reporting during his tenure.

Herz has had a long and distinguished career--as Chairman of FASB, a former senior partner at PricewaterhouseCoopers, a part-time member of the International Accounting Standards Board, an author and someone who has seen the accounting and financial reporting profession develop and grow over the past several decades. In his book, Herz shares his experiences and insight, including the importance of charting and setting a course to improve standard setting when he joined the FASB, making things simpler by rationalizing the structure of the U.S. accounting standard setting, and reorganizing and codifying U.S. GAAP. 

AICPA Insights interviewed Herz on financial reporting’s evolution and his role in it.

6 Things Not-For-Profits Need to Know about Non-Cash Contributions

Not-for-profits continue to encounter unique measurement challenges for gifts in kind. There are a variety of approaches available for not-for-profits to value GIK, which can result in large disparities between handlings by different not-for-profits and questions about the application of generally accepted accounting practices to GIK. Other issues such as identifying the applicable principle markets and the effect of nominal fees on GIK require not-for-profits to scrutinize their GIK practices to ensure GAAP is being properly applied.

Not-for-profits must measure all non-cash contributions such as items auctioned off for charity; excess or obsolete goods given to charity to help fulfill its mission; free print or web advertising space and even radio advertisement air time. However, measuring these intangible items can be challenging, as not-for-profits who receive such gifts would not otherwise purchase or sell them and not-for-profit administrators simply may not know the fair market value of these gifts or have access to valuation information.

The Cloud: Just One SOC Opportunity

It's no secret that an organization's confidential information is vulnerable in today's world of electronic storage. If you have any doubt, just ask The New York Times or The Wall Street Journal – both of which recently reported having their computer systems hacked.

Organizations transferring storage and/or the processing of their data to cloud-based systems are faced with the added complexities of how to best maintain ownership and control data while continuing to assure customers they have controls in place to keep data secure. How can organizations provide their stakeholders with comfort related to this transferred information?

Service Organization Control Reports^SM represent the intersection of cloud computing and the trusted advisor role of the CPA. In 2011, the AICPA introduced three SOC reporting options: SOC 1^SM, SOC 2^SM and SOC 3^SM reports, creating a great opportunity for CPAs to assert their knowledge and capabilities related to examining and reporting on controls at service organizations, including cloud service providers.

Using Technology to Automate Finance and Help You Make Better Business Decisions

Everyone is being asked to do more with less in the current economy; CFOs are no different. Many are looking for ways to enhance and streamline the finance function, from transaction processing to budgeting and reporting. Automation through leveraging state of the art technology is a key component to assist in this endeavor. With advancements in business applications and cloud-based technology like Intacct, Bill.com and others, virtual work environments, mobility and instant data is the new norm.

The Dangers of Providing Client Comfort Letters

Every few years, the issue of providing clients with comfort letters – or verification documents – rears its head among our members. Regulators or banks often look for verification that certain items within a financial statement (e.g., revenue) or a tax return (e.g., income) is "right" and they want a CPA to verify it. AICPA members have even received requests for comfort letters from adoption agencies, health insurance providers and state taxing authorities.

According to the AICPA’s Professional Liability Insurance Program, examples of third party verification information requested by lenders and loan brokers include:

• Confirmation of a client’s self-employment status;
• Verification of income from self-employment;
• Verification of a self-employed borrower’s business ownership percentage;
• Profitability or sustainability of a self-employed client’s business; and
• The impact on a self-employed client’s business if money is withdrawn to fund the down payment on a real estate purchase.

With So Much Information, Who’s to Say What’s Accurate?

"We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely."
--E. O. Wilson, American Scientist

On my smartphone I have four different weather apps. Isn’t it amazing we live in a world where we can find out the weather in seconds on demand? Of course, there’s a price to pay for having so much information available at our fingertips. On any given day, I could consult each app and they each might tell me a different forecast for the day or week. That’s not a huge issue if the difference is a matter of about four degrees in the summertime. I’m not sure I can tell the difference between 74 and 78 degrees, anyway. But what about winter? I may not be able to feel the difference between 31 and 35 degrees, but my steep driveway can definitely convey the difference to me quite well as I spin my wheels on black ice on my way to work in the morning.

That’s why it’s vital that you feel confident about the information you use day-to-day—at home and in business.

New Reporting Framework Will Eliminate “Noise” for Bankers, Other Financial Statement Users

In my almost 20 years in the banking industry, I’ve come across dozens of owners and managers of small private companies who cringe when it comes time to prepare financial statements. That’s because for many of them, the process is complicated, time consuming and costly. Moreover, a number of rules they are required to follow do not deliver financial information relevant to their businesses. These small- and medium-sized entities have been in need of a financial reporting option that is tailored to their circumstances and produces financial statements and information that their bankers can use and rely upon. Now, finally, that financial reporting framework is being made a reality.

One of my most rewarding professional experiences has been serving on the task force that is developing the new Financial Reporting Framework for Small- and Medium-Sized Entities. What’s a SME? No standard definition exists, but the acronym is self explanatory – small and medium size entities, which happen to make up about 20 million for-profit companies in the United States.

How the Clarified Auditing Standards Will Affect You

The Clarified Auditing Standards are now in effect. You may have heard that “these aren’t substantive changes,” but this isn’t the case. Some of the changes included in the new standards will affect every auditor. Based on inquiries we’ve received during recent AICPA webinars on the Clarified Auditing Standards, participants have identified four areas of change that may require more attention.

One substantive change is to the auditor’s report. Headings and specific language for each section are now required within the report. Adding headings and the correct language to an auditor’s report, while affecting every audit, is not difficult to do. The challenge is making sure that it gets done. If a staff person takes last year’s report and changes only the dates, and the firm issues that report without headings and revised wording, then the firm has issued a deficient report. While it may require a little extra work, these headings provide auditors a clear understanding of what additional information is needed and where to place it in a report.

An Interview with AICPA President and CEO on 2013

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.

Emergence of Social Stock Exchanges and Other Market Drivers of Sustainability

Traditionally, investing and “doing good” have been considered two very different activities. Investing was about making money, while doing good was about giving money away charitably to foster some kind of positive change. However, the two concepts have started to merge and form what is now known as socially responsible investing. It offers a way to achieve both a financial and a social return on an investment and has become a popular idea over the last decade. Sustainable and responsible investment now accounts for more than $3 trillion of the roughly $25 trillion in the U.S. investment marketplace, according to the Forum for Sustainable and Responsible Investment.

What Is the AICPA’s Health Care Expert Panel and What Do They Do?

Up until about a year ago, I had only heard that the AICPA has expert panels  but I didn’t really have any idea about what they are or what they do. I was asked to staff the Health Care Expert Panel  and I can tell you last year has been quite a ride!

Who Is the Health Care Expert Panel and What Is Its Mission?

The Panel consists of 13 members who represent a mixture of firm practitioners as well as preparers and users who work in the industry. They all have one thing in common—they are considered to be some of the health care industry’s “cream of the crop” and best equipped to carry out the panel’s mission to protect the public interest and address the needs of AICPA members in the areas of financial reporting (including business reporting), audit and attest services, and regulatory matters from the health care industry perspective.

SOC Reports Replace SAS 70 [INFOGRAPHIC]

Service Organization Controls reports are designed to help service organizations, organizations that operate information systems and provide information system services to other entities, build trust and confidence in their service delivery processes and controls through a report by an independent Certified Public Accountant.  Each type of SOC report is designed to help service organizations meet specific user needs. This infographic explores the transition from SAS 70 to SOC reports and how they apply.

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SOC Engagements: How to Get in the Game

4 Steps to Better Risk Assessments

What is a 'Digital CPA'?

Value Pricing: Aligning Your Interests with Those of Your Clients

3 Myths of Succession Planning

Clarifying Clarified Auditing Standards on Group Audits

As I promised in my blog post “3 Things You Need to Know About Clarified Standards,” here’s an analysis on the changes wrought by the new clarified auditing standards on group audits.  

As I said previously, the key point here is to realize when this section, AU-C 600, Special Considerations--Audits of Group Financial Statements (including the Work of Component Auditors) applies. It applies not only when other auditors perform part of the audit, but whenever the financial statements include financial information of components, such as equity investees, subsidiaries or other business entities and activities that are included in the group financial statements. Even if you are the only auditor, if the financial statements include financial information that is consolidated, combined or aggregated from a separate financial accounting system, the provisions of AU-C 600 apply.

4 Things to Know About Performing and Reporting on SOC Engagements

So, have you started doing Service Organization Control engagements at your firm yet? You’ll recall in my last blog post that jumping into this niche area is a great way to engage existing clients and new clients in an emerging market.

The AICPA has been fielding a number of questions regarding performing and reporting on SOC 1^SM, SOC 2 ^SM and SOC 3 ^SM engagements. Here are four of the key queries and their answers to help you and your firm move forward in starting a SOC practice:

4 Steps to Better Risk Assessments

In my role at the AICPA, I’ve always been a big advocate of helping firms perform smarter audits by deepening their understanding of the client. I want to help firms understand the distinct advantage they can gain by better understanding the concept of significant risks and gathering useful risk information through performing a more thoughtful and efficient risk assessment. A new whitepaper I have just published discusses the steps you can take in greater detail.

Why Financial Statement Preparation is Proposed to Be a Nonattest Service

One reason why I love my position at the AICPA is because I get to meet with so many wonderful members who work so hard to make the CPA profession great. I’m always interested in discussing our new proposed standards and listening to their views about how those standards assist them in their day-to-day work.

As I traveled the country this past spring and summer, I wanted to hear how our members perceived the changes that both the AICPA’s Professional Ethics Executive Committee and the AICPA’s Accounting and Review Services Committee have proposed on a very important issue.

Stakeholders Invested in Sustainable Business Practices

Have you seen the CGMA Report “Thirsty Planet”? The report expertly underscores the need for businesses to consider social and environmental sustainability as a means to sustain business. Ensuring that natural resources, such as water, are safe and clean for future generations, communities and businesses to come should be a priority for businesses. 

A sustainable enterprise has a clear strategy not only on how it will make money, but also on its social and environmental impact. An organization’s ability to create and preserve value for itself, its stakeholders and society at large, depends on the strength of its business model;  the sustainability of the financial, social, economic and environmental systems within which it operates; as well as on the quality of its relationships with, and assessments and decisions by, its stakeholders.  Businesses need to consider environmental and social impacts in order to have a genuinely sustainable business that makes money—not just because it is the right thing to do, but also because it makes good business sense. 

Compelling Research and Helpful Tools for CGMAs

As a busy CPA in Business and Industry, you may not have time to seek out resources to help you in your day-to-day work. More than 33,000 CGMAs are already enjoying access to valuable benefits like innovative thought leadership reports and tools. The following is just a sample of the dozens of resources available on CGMA.org.

3 Things You Need to Know About Clarified Standards

With only one AU section left to clarify, the Auditing Standard Board’s Clarity Project is substantially complete. During the past year, I have been traveling around the country talking about the 47 “AU-C” sections that have been clarified and converged with corresponding International Standards on Auditing. Here are some of the major points that you need to know about these standards and their impact:

New Tools to Help Companies and Auditors Evaluate XBRL

As the last group of companies is subject to the final phase of the Securities and Exchange Commission mandate this summer, we are reaching a major turning point for eXtensible Business Reporting Language implementation in the U.S. Investors now have a full data set accessible for their analyses as all information from a company’s financial statements, as well as the notes and schedules, are individually tagged at a detailed level. This means investors now have the ability to search and access specific pieces of information for all public companies.

The Role of the CPA in a Crowdfunding Future

In 2010, many sectors of the U.S. economy began to improve from the Great Recession—however, small businesses lagged behind, largely as a result of having trouble raising the capital they needed in a still tenuous financial recovery.

This led to the advent of a concept called crowdfunding. Crowdfunding—inspired by crowdsourcing—describes the collective cooperation, attention and trust by people who network and pool their money together, usually via the Internet, in order to support efforts initiated by other people or organizations.

SOC Engagements: How to Get in the Game

As with so many issues related to the accounting profession, opportunities to engage new clients or re-engage existing clients abound when standards are updated or changed. Such is the case with Service Organization Control Reports ^SM. The guidance for service auditors in the old Statement on Auditing Standards No. 70, or SAS 70, as it was known, was replaced effective June 15, 2011, by Statement of Standards for Attestation Engagement No. 16, which can give your firm and its clients a new set of standards to meet user needs.

If you haven’t already looked into this growing market for CPA services, here are some tips on how you can start a SOC practice:

CPAs Make Sure to Provide Financial Information that Makes a Difference

In these days of continuous information, it’s essential to give people and organizations precisely the details they need to make important decisions. What never fails to cut through the clutter is information that is relevant, understandable and useful (not to mention correct). As CPAs, we often are a conduit for complex technical information, providing analysis and guidance in the process. We currently are working on two critical initiatives that bring this hallmark of our profession to life.  

Why the AICPA Supports FAF’s Creation of Private Company Council

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.

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.

Integrated Reporting Essential for Useful Business Reporting

The current model for financial reporting has long been under discussion; investors and other stakeholders want more than a historical look back and one that only focuses on financial measures. They want to see the value companies create through intangible assets too.  Part of the solution is integrated reporting, which provides a holistic presentation of data and brings together the many disparate reports that organizations provide (as opposed to being an add-on to existing reports).

4 Reasons CFOs Should Care about Integrated Reporting

On Nov. 15, the AICPA organized a roundtable discussion for the International Integrated Reporting Committee at SAP’s headquarters in Palo Alto, Calif. I attended the meeting along with representatives from major investors, companies and other stakeholders. It allowed us the opportunity to discuss the business case for integrated reporting, and the challenges surrounding the acceptance of this critical reporting framework. Among those challenges is communicating the benefits of integrated reporting to businesses and their stakeholders, especially CFOs.

Why should you care about integrated reporting?

Congress is Keen on XBRL

AICPA staff members are very busy keeping up with activity related to eXtensible Business Reporting Language in the U.S. Congress.  Earlier this month House Ways and Means Human Resources Subcommittee Chairman Geoff Davis (R-KY) and Ranking Member Lloyd Doggett (D-TX) introduced H.R. 3339, the Standard Data and Technology Advancement Act, or the “Standard DATA Act.” The bill aims to establish consistent requirements for the electronic content and format of data used in the administration of key human services programs. Specifically, it calls for the incorporation of existing nonproprietary standards, such as XBRL.

If enacted, this bill would improve the collection and dissemination process for the federal government by standardizing data and eliminating time-consuming and error-prone manual processes. 

Chair's Letter: Overcoming Challenges

Welcome to my first blog post as the new AICPA Chairman of the Board of Directors. I am honored to serve you and our wonderful profession during the next year and hope to meet many of you as I travel around the country.

It’s a great privilege to take on the role of chairman in the year the AICPA celebrates its 125^th anniversary in 2012. A source of pride for all of us, this milestone signifies both the historic and contemporary importance and relevance of our profession, and its staying power as a career.

ASB Reaches Major Milestone in Clarity Project

In 2004, the AICPA Auditing Standards Board began work to clarify Statements on Auditing Standards, Statements on Quality Control Standards and Statements on Standards for Attestation Engagements to make them easier to read, understand and apply. At the same time, the ASB undertook a project to converge its standards with those issued by the International Audit and Attestation Standards Board.

Last week, the ASB announced it has achieved a major milestone in the Clarity Project with the issuance of SASs Nos. 122–124. Together with the issuance of SASs Nos. 117-120, 44 (out of 47) clarified SASs have been completed and issued.

Most Clarified SASs become effective for periods ending on or after Dec. 15, 2012. For exceptions to this effective date, view the AICPA’s resource which highlights those standards with a different effective date. This is the first complete recodification of U.S. generally accepted auditing standards since 1972.

While the main goal of the Clarity Project is make U.S. GAAS easier to read, understand and apply, another goal was to converge with international standards while avoiding unnecessary differences with the auditing standards issued by the Public Company Accounting Oversight Board. Some differences are necessary as the auditing standards are used for audits of public companies while the SASs apply to audits of private companies.

So what does the Clarity Project mean for you?

Independent Board is Needed for PCGAAP

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.

In the News: PCGAAP, Accounting Jobs, Sustainability

Happy Friday, dear readers – it has been a while. My weekly news wrap up post will now appear bi-weekly, with a post which spotlights interesting content from around the web appearing on alternate weeks. Should you want more frequent updates of news related to the accounting profession, please consider following AICPA Media Relations on Twitter @AICPANews or subscribing to the Media Relations RSS feed.

Now let’s get to the news, shall we?

One of, if not the most, pressing issues facing the accounting profession is the debate over the creation of separate reporting standards for private companies. The chorus of voices on one side of the issue got a lot louder this week with the announcement that thirty-three state CPA societies have joined the AICPA in calling upon the Financial Accounting Foundation to create a separate standard setting board for privately held companies. Michael Cohn of Accounting Today writes that AICPA advocates a separate board for private company accounting standards independent of the Financial Accounting Standards Board, under the oversight of the FAF. AICPA Chairman Paul Stahlin, CPA, said “after over 30 years of research by numerous diverse and independent groups, the only conclusion is that an autonomous standard-setting body under FAF to set differential standards for privately held companies must be created.”

In the News: Dividends, PCGAAP, Deductible Loss

Multiple news outlets, including Tax-News.com and Accounting Today covered the news that more than 2,600 letters have been written to the Financial Accounting Foundation demanding differential financial reporting standards for private companies and a separate independent board to oversee those standards. “Ninety nine percent of the letters from the privately held company constituency demanded that the FAF create differential standards for privately-held companies,” said Barry Melancon, CPA, AICPA president and CEO.

Paul Stahlin, CPA, AICPA chairman, said “now is the time for the FAF to take the bold step of creating a separate board to set relevant standards that privately-held companies sorely need. We call upon more CPAs and business leaders within the privately-held company constituency to push the FAF to make these changes.” The AICPA developed a letter writing tool to help members write letters to the FAF in support of a private company board.

The Incredible eXtensible Business Reporting Language

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Back in 1998, Charlie Hoffman, a CPA, embarked on a quest to revolutionize the way the world creates and shares business information. Based on eXtensible Markup Language, a new document markup language at the time, the eXtensible Business Reporting Language was created. Hoffman took his idea to the AICPA, which funded and championed the project. By 2000, XBRL 1.0 was published and interest had grown beyond the borders of the U.S. into the international community. Countries from Australia to Spain were signing up and applying XBRL to form better business information.

Significant Changes Coming to U.S. GAAP

Back in 2002, the Financial Accounting Standards Board and the International Accounting Standards Board signed the Norwalk Agreement, marking the first major step towards formalizing their commitment to the convergence of U.S. GAAP and International Financial Reporting Standards.  Nearly 10 years later, newly converged standards are on the verge of finalization. While the Boards have completed five priority projects to date (fair value measurement, consolidated financial statements [including disclosure of interests in other entities], joint arrangements, other comprehensive income and post-employment benefits), three priority projects remain: Revenue Recognition, Financial Instruments and Leases. Despite garnering a great deal of attention, it is often missed that these standards when finalized are going to be part of U.S. GAAP and will affect smaller nonpublic companies and not-for-profit entities; not only public companies.

In the News: PCGAAP, Protecting Elderly Clients

Paul Stahlin, CPA, AICPA chairman, wrote an editorial titled ‘One-Size GAAP’ Does Not Fit All for The CPA Journal, a New York State Society of CPAs publication, on the need for differences in accounting standards for privately-held companies. Stahlin highlights the recommendations of the Blue Ribbon Panel on Private Company Financial Reporting, including the creation of a separate board with standards-setting authority under the Financial Accounting Foundation’s oversight and changes and modifications to existing U.S. GAAP, where appropriate, for private companies.

 

Be a Part of Making Historic Change for Private Companies

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.

Integrated Reporting Framework in the Profession’s Future

At the end of June, I had the pleasure of attending the International Integrated Reporting Committee (IIRC) Roundtable meeting at the Bloomberg global headquarters in New York. What a great event!

Business leaders from corporate, investor, standard-setting and regulatory communities sat down to discuss opportunities for creating a business reporting model that links environmental, social and governance (ESG) reporting to mainstream reporting. This integrated framework would then give investors and the public more comprehensive information on how organizations use their resources and perform over the long term.