Barry Melancon has been leading the American Institute of CPAs since 1995. As president and CEO of the AICPA, he has been keeping busy on a number of fronts this past year. The Institute has been working with Congress on patent reform to keep tax strategy patents from taking hold. Another priority has been CPA mobility, so CPAs face fewer regulatory barriers when practicing across different states. Melancon has also been closely involved with the effort to move toward Extensible Business Reporting Language for financial statements, spearheading an initiative to assign data tags to generally accepted accounting principles. He was recently named co-vice chair of the Center for Audit Quality and to a position on the Treasury Department's new Advisory Committee on the Audit Profession. Melancon is also a member of the AICPA's delegation to the International Federation of Accountants. His accounting career began in 1979 at Bergeron & Co. in Louisiana. Before joining the AICPA, he served for eight years as executive director of the Society of Louisiana CPAs.
Q: The SEC has been mulling the idea of allowing companies to report in IFRS without reconciling to GAAP. What do you think of that possibility?
A: We've always been supporters of convergence. GAAP and IFRS have come together through joint exposure drafts. If you look at the proposal to allow foreign registrants to file in IFRS without reconciliation to GAAP, I think that's going to happen. The European Union has re-adopted IFRS, but they may tweak it along the way. They've tweaked it a few times, but not massively. We are in the process of finalizing our position on that. I would think that pure IFRS is going to win the day rather than this hodge-podge off of one set of standards. The second point is, particularly from a timing perspective, more complex: to eliminate the reconciliation U.S. companies follow under IFRS. We had a very lengthy discussion on the board. The response is due in November and I can't tell you exactly how it's going to come out, but I can say that I think it's important to look at the issue in more than just the context of IFRS. It also includes enforcement and auditing, and it's important that we look at the totality of that particular environment and make sure that if we are going for alignment that we also worry about alignment in all these other elements as well. If we just take part of it, then you may not have the result you want. If we go down that path, it's important that there be a firm commitment at the international level for the continued improvement and investment in IFRS. IFRS has come a long way. I don't think anybody should sit back and say the U.S. system is superior to IFRS. There are different approaches on different issues. But there are some issues of how we make sure that the continuing investment in improvement and leading-edge thinking is going to occur.
Q: What do you think about the pros and cons of licensing of tax preparers?
A: We think it's important when you seek the solution to something to understand the problem. We think the problem here can primarily be identified as the commotion about refund anticipation loans and abuses in the Earned Income Tax Credit, just to name two [issues]. We think through greater enforcement in those areas, regardless of whether [someone is] a CPA, an enrolled agent, a lawyer, or a paid preparer, that you enforce against those abuses and you do a significant amount of work to create a consumer protection environment. More likely than not, that would be applicable to all preparers. That probably achieves the positives you want without creating a false impression. The enforcement of a preparer-licensing regime has a high propensity of giving the wrong impression to taxpayers. That would be our concern.
Q: What are you doing to attract more young CPAs to the profession?
A: Periodically we bring together young CPA leaders from each state, and we have a conference where we try to create information sharing. In the Young CPA Network we have newsletters, and we try to increase the awareness of some of these issues at the accounting firms, particularly the mentoring issues that are so important to this generation. You really have to start with recruiting people into the CPA profession. There are a higher number of people graduating in accounting that don't take the CPA exam than we would like. We are working on some strategies from that standpoint. But the biggest issue is really focusing on the current leaders, and having them be influenced to think differently about working with this generation.
Q: Is XBRL going to help preparers and help with forensic auditing?
A: I think there's a lot of applicability. From a preparer perspective, XBRL will be embedded in spreadsheets and things of that nature that will give confidence and consistency in internally generated information. On the fraud detection side, potentially. XBRL doesn't automatically generate analytics for fraud, but it highlights and makes it more efficient to at least look for fraud. Ultimately tax information and things of that nature will be driven by XBRL taxonomies, which is going to make enforcement more efficient in some cases. One of the key things for us is to educate the preparers. Ultimately we have to have the tools for the vast majority of preparers to understand what this is all about so they can begin to explore and find different ways to use it.
Q: What do you think about the proposed ethics interpretation on network firms' liability?
A: Networks have liability implications, more so than the proposed interpretation on the ethics rule. There's already an ethics rule in place on a national basis on networks that we have some concerns with. We try to make sure the interpretations are more analogous to how we perceive that works. Networks, associations, alliances all fall into different buckets. Vicarious liability is the No. 1 liability issue when you're associated with other people through an affiliation process, [with] networks being one of those. Merely by the fact that the three of us are independent and we all subscribe to the same branding gives the plaintiffs an opportunity to sue us. There are some steps we need to take to minimize that. The independence rule per se does not change that liability. There has been a history of vicarious liability suits, and it's also the U.S. regime in that area. There are going to be foreign firms who want to have closer affiliation with the U.S. firms in those areas, but they're scared to death about the exportation of U.S. liability to non-U.S. firms under that regime.
Q: What events in the past 20 years do you think have had the most impact on the accounting profession?
A: You have to put Enron, WorldCom, Andersen's collapse, and Sarbanes-Oxley in there. Technology has certainly affected everything in society over the past 20 years, but it's had a dramatic impact on the profession. Over the last 20 years, there has been a broadening of the profession and where expertise is viewed, for advisory, financial planning, business valuation, litigation, IT, tax. Advertising has changed the ability of the firm and the CPAs to get their positioning out there.
Q: One of the presidential candidates, Barack Obama, has proposed that the IRS automatically prepare returns for taxpayers, present the completed returns online, and just have the taxpayer sign the return. What impact would that have if it were available?
A: Technology is changing the ways that a lot of taxpayers file returns, and it will continue to do so. I think that you will continue to see, particularly with the less sophisticated returns, an evolution that will make them more automatic. Today clearly, percentage-wise, there are far fewer Americans filing returns than there were before. Tax reforms over the past several years have continued to raise the thresholds of which people file. CPA practices will see much more sophisticated taxpayers. It's unlikely that a system during the term of any of the presidential candidates, whether they are reelected or not, would involve the sophisticated, complicated elements of preparing people's tax returns. Even if you went to a completely different system, the transitional issues associated with that would by definition be complex.
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