In ancient times, I'm told, religious scholars passed the time by debating such arcane esoterica as how many angels could fit on the head of a pin. Fast forward a few centuries and you would likely unearth CPAs engaged in furious debate as to what concept has been kicked around longer - tax reform or financial standards for privately held companies. Truth is, both issues probably deserve to be carbon-dated. Both are rooted somewhere about the time that televisions stations used to end their daily programming with the playing of The Star-Spangled Banner.
But I digress. Last month, President Obama devoted a more than fleeting mention to tax reform during his State of the Union Address, which piggybacked on the 11th-hour agreement to extend the Bush tax cuts for another two years and, in the process, at least projected a veneer of bipartisanship. In reality he had little choice in the aftermath of the pasting his party took in the November elections.
Obama urged congressional leaders to traverse party lines and work on an overhaul of both corporate and individual taxes to reduce tax loopholes. But tradition has dictated that tax reform has primarily consisted of temporary patches and extensions in lieu of real reform, so despite the president's exhorting Democrats and Republicans to "simplify the system and get rid of the loopholes," we've all been through this exercise before.
Nearly six years ago, Obama's predecessor in the Oval Office established the President's Advisory Panel on Federal Tax Reform, a bipartisan panel formed "to advise on options to reform the Tax Code to make it simpler, fairer and more pro-growth to benefit all Americans." After a year of meetings across the country and a report to the Treasury Secretary, exactly nothing happened. More recently, in August, the President's Economic Recovery Advisory Board issued a report on tax reform options, which included broader-based recommendations such as simplifying the Tax Code; raising the standard deduction and reducing itemized deductions; simplifying or eliminating the Alternative Minimum Tax; broadening the corporate tax base; and reducing tax expenditures. But delivering mellifluous oratory before both houses of Congress amidst standing ovations is the easy part. Enacting reform is not.
While tax reform garnered prime-time coverage in the Capitol Rotunda, about 250 miles north, the Financial Accounting Foundation, amid far less fanfare and media glare, submitted the recommendations of the Blue Ribbon Panel on Standard-Setting on the decades-old debate of whether private companies need a separate set of reporting standards in lieu of U.S GAAP. The panel recommended establishing a separate board to determine private company standards that would be overseen by the FAF. The report also proposed creating a differential framework to facilitate a standard-setter's ability to "make appropriate, justifiable exceptions and modifications." It did not, however, advocate a separate GAAP for private companies, or a top-down re-organization of GAAP.
As with tax reform, there are bound to be hurdles and critics.
Our columnists Paul Miller and Paul Bahnson pointed out in our last issue that the 18-member panel is comprised of eight preparers, four CPAs, two regulators, a lobbyist, an academic and two venture capitalists - their argument being that a majority of preparers and auditors would advocate making statements easier to prepare and audit, as opposed to giving users the information they need.
Either way, this year may well be the go or no-go signal for each initiative or both.
Because, as everyone knows, after all is said and done, there is usually more said than done.
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