American Institute of CPAs president and CEO Barry Melancon derided the recent efforts of the Financial Accounting Standards Board to preserve its authority over private company accounting standards, saying, “Sometimes dynasties need to be broken.”
FASB has been trying to give more attention to the concerns of private companies in the past year, especially in the wake of the Blue-Ribbon Panel report recommending that a separate standards board be set up to oversee private company accounting standards (see Blue-Ribbon Panel Recommends Private Company Board). FASB has added a board member who comes from the private company world, held a series of roundtable discussions for private companies, and dedicated staff members who are supposed to focus on privately held companies. However, Melancon noted that the Blue-Ribbon Panel had already taken those changes at FASB into account before issuing its recommendations in January.
“All of those things were known by this committee, and they said, ‘Nice, but insufficient. Good, but that’s not going to get us there,’” he said Monday at the AICPA’s Spring Meeting of Council. “‘We appreciate what you’re doing, but we’re a little skeptical that maybe what you’re doing is because the pressure is being brought to bear today, but we’re not sure that you’re really committed to the differences for private companies.”
He noted that FASB’s parent organization, the Financial Accounting Foundation, has now taken the report and said it would conduct its own study. To Melancon, that means they are basically starting over. He predicts that after the FAF gets further feedback on what to do, it will ultimately propose a committee that would have the ability to recommend differences for private companies, but still be subject to the veto of FASB.
“That sounds a lot like the Private Company Financial Reporting Committee,” said Melancon. “In fact, it’s exactly like the Private Company Financial Reporting Committee.” The PCFRC is a joint committee of the AICPA and FASB. Melancon does not believe FASB should be able to veto private company standards, and he pointed out the current model has been in place for 35 years.
Using football metaphors, he dismissed various arguments in favor of preserving FASB’s role in setting private company standards, including the argument that International Financial Reporting Standards is on the way eventually anyway and everybody should wait until that happens, or that the standards would get more complex if differences were allowed for private companies.
“Maybe we will have IFRS, but if we do probably it will be 2017, 2018, or 2019, and the change management process is going to be pretty significant for the companies best situated to be able to deal with that,” he said. “That’s not going to be private companies.”
Melancon noted that some countries, such as Canada and the United Kingdom, already have separate boards for private company standards, and the U.S. is actually behind in that sense. The Blue-Ribbon Panel estimates that setting up a private company board would cost only about $4 million, or about $90 a firm or 14 cents for each private company.
“The time to act is now,” said Melancon. “We have the opportunity. The defense wants to keep you out of the end zone.”
Melancon noted that the Financial Accounting Foundation is working on a white paper to open up the dialogue, and he urged members of the AICPA Council and the state societies to send in comments. The AICPA will email them a link with talking points they can cut and paste into their letters, but he urged Council members not to send duplicate form letters. “We do need the team to get it across the goal line,” he said. "This is our time."
Also of note during his speech, Melancon said that he had conversations with the IRS commissioner about the IRS's plans to require a competency exam for registered tax return preparers. CPAs are currently exempted from that requirement, along with enrolled agents and tax attorneys. However, the Institute has been concerned that the public may view any tax preparer who has passed the exam as someone akin to a CPA. Melancon said there would be a clear disclaimer and description saying that anybody who had passed the competency exam was not the same as a CPA. enrolled agent or tax attorney. He said the IRS commissioner is committed to having the program developed in a way that is respectful of those concerns when the program is rolled out in the next month or two.
In addition, Melancon reviewed the findings of a survey that the AICPA had conducted of how firms have been faring during the economic recovery. "Generally speaking small firms have fared better through this economy than larger firms, but the recovery is being felt a little bit more positively in the larger firm environment because they were more impacted to begin with," he said. However, CPA firms have been telling the AICPA that their private company clients are still trying to recover from the recession.
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