Renewing its vision is the new theme for the American Institute of CPAs as it gets ready to welcome in a new chair and enter its 125th year as an organization.
The October meeting is always a little bittersweet for me, Melancon said. Its obviously sweet because we start a new year with a new chair, but it is bitter because close relationships go with the outgoing chair each year.
Melancon was referring to outgoing chair Robert Harris. The two have had a professional relationship since 1988.
Hes one of the few people I know who can fuel his body with a bag of potato chips, Harris said about Melancon during his introduction. Melancon, in turn, showed a video called A Day in the Life of Harris on the road during his term.
We can create environments and thought leadership that help people evolve the profession, said Melancon. None of us as an organization or individually can absolutely assure an outcome, but collectively we can address the issues of the day and hopefully find solutions.
Melancon touched upon a variety of issues from new economic realities and how the American psyche is changing. According to a survey by USA Today, 19 percent of American people say college is not a good investment.
Changing realities bring new risks, he said. We have to be cognizant as a profession if we are going to meet our obligations.
He said states are facing tremendous challenges, including a pension-funding crisis on the horizon. More than 20 states have pension-funding levels below 80 percent, and there is a $1 trillion gap between what was promised and what was set aside for pension and health care. Twenty-four states pension plans will be insolvent by 2025.
We are seeing the need for our skill set to be front and center to solve some of these macro issues, he said.
He listed many economic uncertainties, such as the Dodd-Frank Act, health care, a threat of deflation, interest rate policies, the high foreclosure rate in the real estate market, and expiring tax cuts.
Melancon also talked about the public sector and pointed to a recent investor survey released by the Center for Audit Quality. Confidence remains fairly consistent when you look at investing in public companies, he said.
There are some positive outcomes of the recession, according to Melancon. The number of sole proprietorships has increased, volunteerism is growing, there is more of a do-it-yourself mentality, and creative solutions to everyday problems are emerging. Financial literacy has improved, as well as the public knowledge of the trusted advisor role for CPAs.
Melancon said the PCAOB issued a report on audit practices and that the organization is calling for more files to be public. The board has three vacancies out of its five positions and is proposing an amendment to Sarbanes-Oxley to allow the PCAOB to make its disciplinary hearings public.
Melancon said any SOX changes need careful consideration or there may be a series of unintended consequences.
The AICPA also plans to participate in a discussion around a green paper on the study of auditing issued by the European Union. The EU is looking for input on auditor independence, systemic risk, and reliance on audited financial statements, supervisors roles, and a host of other issues.
Any of the recommendations that come out of this will not be isolated to the EU, Melancon said. They have ramifications beyond just the borders of where it happens to be studied. We will be participating. It has potential risks and potential opportunities as well.
Melancon said that while the economy has taken center stage for the last couple of years, tax will be moving to the forefront for the next year and half due to questions around tax policy and its implications.
Tax preparer registration is a major issue for the AICPA. Melancon noted that Karen Hawkins, director of the IRSs Office of Professional Responsibility, has said the agency plans to create a new profession.
There are certainly parts inside the IRS that clearly see this as creating a new profession, Melancon said. This needs to be on your agendas, part of your education. Its not so easy for us to be successful on this issue because there is a lot of momentum. Melancon said the IRS testing and exam issue should be delayed.
Melancon discussed the concept of glocal, a combination of global and local. He stressed that instead of these being competing trends, they are two very different forces that need to be recognized. While its easy to get caught up in local cocooning, he said its important to not forget about global issues such as the recession, taxes, foreign ownership and International Financial Reporting Standards. Twenty five percent of businesses say globalization has affected their business, he noted.
Melancon said that growth in the global economy is coming from underdeveloped economies and developed economies are going through a period of little to no growth.
Next year will be a critical year for IFRS, according to Melancon. Jim Kroeker, the chief accountant at the Securities and Exchange Commission, showed leadership by acknowledging that June 2011 was an arbitrary deadline for completion of major standards, Melancon noted. He said 122 countries have adopted IFRS. It is not an inconsequential issue to our competitive environment, he said.
That said, members are learning more about IFRS at least more than in October 2008 when 26 percent reported some knowledge. In September 2010, that number jumped to 33 percent.
Melancon said the Blue Ribbon Panel on Standard Setting for Private Companies will continue to be a major priority at the AICPA. Between now and the time we are together again, there is going to be a lot of things that are going to be evolved in this area, he said. As I travel around, our members have a lot of frustration. Now is the time for us to make a difference and step up.
Sustainability will continue to be important issue going forward because of marketplace demand. Melancon said sustainability spending will double to $60 billion by 2014.
Forget the political issues, he said. This is marketplace driven. Businesses are facing challenges in these areas, and with that comes opportunity.
The AICPA also plans to continue to raise its membership value for those in business and industry those who make up half of the Institutes membership.
This is a good year with Paul [Stahlin] in the chair to make sure we are focused on this particular objective because it is very important to us, Melancon said.
Melancon also discussed the AICPAs longtime priority of passing CPA mobility legislation in states around the country to allow CPAs to practice across state lines. While 45 states have active mobility, Melancon said, the next phase is focusing on implementation.
Very few boards have procedures on how to give up a certificate or get it back, he said. We need to be very very careful in implementation that we get this right. We dont want to undo the hard work we did in the legislative branch.
Firm growth from merger and acquisitions continues to be a trend watched by the AICPA. Melancon said there are different models of growth emerging from those firms besides the top six. He pointed to more horizontal activity than ever before and said the marketplace will determine which model of growth works best.
Larger firms are seeing some degree of economic recovery among their clients, but for many smaller firms, their clients businesses are still in economic crisis mode.
Melancon also touched upon the importance of engaging the younger generation, especially those in the 18- to 26-year-old age range, also known as Gen Y Me.
Weve had this big influx of young people entering our profession, he said. We dont want to lose those individuals. As employers, it is very important to our long-term sustainability that we nurture them in this process. It is important we are in tune with the feelings they are having. Take that back home with you.
As the AICPA approaches its 125th anniversary in May 2012, Melancon said it needs to look to the future.
In closing we have an opportunity to continue to seize the future, he said. Despite the issues, he added, we have had a wonderful year.
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