On the second day of the American Institute of CPAs’ Practitioners Symposium and TECH+ Conference and the 2012 Association for Accounting Marketing Summit, institute CEO and president Barry Melancon and chairman Greg Anton offered up a tag-team summary of the major issues facing the accounting profession—as well as some of the major opportunities.

The issues and the opportunities are often interrelated. As an example, in discussing one of the major issues facing the profession, Melancon said, “Complexity is the biggest obstacle and the biggest potential value-adder. And the rate of complexity in the world is not going to go down.”

Among the complexities are the growing globalization of business. Anton said that his CPA firm in Denver has multiple clients doing business in China. “There’s mixed feelings about doing business internationally, specifically in China,” he said, due in part to concerns about regulatory and legal uncertainty. “But there are opportunities beyond belief when you visit the Asian markets.”

“Technology is powering a lot of this” globalization, Anton said, but it also raises security issues. He related that he had been personally affected by a recent massive loss of data at LinkedIn, and had to decide if the risk of re-opening all his social media accounts outweighed the value. “I’m going forward with social media,” he said, “but we need to be aware of risks” of things like identity theft.

Anton also discussed the efficiency challenges facing firms. “It’s been a difficult busy season. We’re doing more with less. Firms across the country are doing more work with fewer people. The human capital hasn’t been hired up to meet the new business demands. We’re seeing an increase in turnover within very large firms across the country.” At the same time, he added, “the new normal is the steady line. Not going down, but not significant growth. So for CPA firms to expand, we have to develop deeper relationships with clients and use new tools.”

Firms also need to explore offering new services, and Anton listed a number that should be of particular interest to CPAs: integrated reporting; enhanced business reporting; state and local tax compliance; SOC reports; helping companies with XBRL; business process outsourcing; risk management; and cyber security. The massive growth of data also offers opportunities in security, analysis, evaluation and advice.

Melancon offered more background on integrated reporting, which is a framework for reporting financial and non-financial information—including social, environmental and governance-related material—which he expects more and more companies to use. He showed Pepsi’s annual report as an example, noting that 81 percent of the metrics deal with non-financial information.

Regulatory Issues

A significant portion of the keynote covered recent and upcoming legislation and the regulatory environment. While Melancon noted that the profession had managed to fend off attempts to regulate advisory services from accountants under the Dodd-Frank Act—which he described as “a major accomplishment”—he said there was still concern over how the regulation of broker-dealers would affect the accountants who audit them.

By far the most important current regulatory issue is mandatory audit firm rotation, which has advanced in other parts of the world. Brazil has actually enacted it, Denmark has legislation pending, and France has pushed it in Europe, primarily with the intention of dealing with an over-concentration of auditors. “Any fair look would say that mandating audit rotation will only end up with rotation among Big Four,” Melancon said. “It wouldn’t affect concentration.”

In the U.S., the Public Company Accounting Oversight Board introduced an exposure draft on the subject, primarily to deal with concerns about the appearance of conflicts of interest in long-tenure audit engagements.

Even though Melancon does not expect it to be adopted in the U.S., he does think there could be a cascade effect, where dual-listed firms are forced to rotate their audit firms in the U.S.—and he cited “numerous” calls he has received from firms whose clients had switched auditors because they had heard about the possibility of mandatory auditor rotation.

Finally, he pointed out the irony that “Europe is maintaining discussions about firm rotation because the Americans are talking about it, and the U.S. is talking about it because the Europeans are talking about it. You could say there’s a bit of regulatory arbitrage going on.”

Less significant, but still of some concern, are the PCAOB proposals on changes to the auditor’s report. “There are some pros and cons here,” Melancon noted. “It’s not all negative.” He predicted that whatever changes come along, the auditor’s report would not morph into a sort of “auditor’s discussion and analysis.”

From there, Melancon moved on to discuss the possible ramifications of a provision in the JOBS Act that exempts certain small public companies from some SOX and other reporting requirements—allowing them, among other things to take advantage of accounting standard implementation-date deferrals granted to private companies. “This could be a two-edged sword,” Melancon said. “It could lead to FASB saying, ‘Because we don’t want to give this deferral to public companies, we won’t give it to private companies either.'”

Tax Legislation

“We will not have a major tax bill before election,” Melancon said. “We will have a major amount of rhetoric.”

He added, “We will have the most incredibly intense and important lame duck session after the election,” and then laid out a long list of tax issues that the post-election legislature will face, from automatic spending cuts, the expiration of the 2 percentage point payroll tax withholding holiday, and the possible return of the debt ceiling argument, to the estate tax changes and a slew of expiring tax cuts and more, many of which fall due on December 31.

“Congress will likely not make any permanent solutions,” Melancon said. “It will make temporary fixes, creating uncertainty for you and your clients.”

Melancon also outlined a number of other tax issues—and some successes. He described how the state tax environment will become more fraught and complicated as states pursue revenue, but also cited institute support of pending legislation that will make it easier for people to work across state lines without undue taxation. He said the institute had worked with the IRS to persuade it to kill a fingerprinting requirement in its tax preparer registration regime, and the AICPA had legislation moving forward to rationalize tax due dates.

Private Company Reporting

Taking up the baton, Anton moved on to cover private company reporting, starting by thanking the 10,500 accountants who had responded to the AICPA’s call to send letters to the Financial Accounting Foundation on the issue.

He said that changes to the FAF’s proposal for a private company council had made it possible for the AICPA to support it. “Why are we comfortable supporting this going forward?” he asked. Among other changes that reduced FASB’s sway over the new council, he mentioned, “It’s now an endorsement model, versus a ratification model. So FASB must endorse a proposal from the council within 60 days, or it must produce a public report as to why a simple majority didn’t endorse the proposal, and it must produce explanations of what must be changed so they can endorse it.”

On the issue of the pending decision of the SEC on the adoption of IFRS in the U.S., Anton said, “Be aware: Right now, any public company outside the U.S. can file financials in the U.S. in IFRS. Any foreign company can go public in the U.S. with IFRS today. The debate is over whether U.S. domestic companies should file in IFRS. It’s not fair that U.S. companies can’t file—it’s not apples to apples. Maybe we should give U.S. companies the option to file in IFRS.”

“We expect the SEC to do this,” he said, but with the caveat that it would be with an implementation framework of years, not months.

He noted a few ongoing regulatory projects: FASB and the IASB are still converging their standards on revenue recognition, leases and financial instruments, and they are expected to conclude in 2013. SAS Clarity standards have been updated, and will be effective on or after December 15; and the final COSO internal control framework is expected to be complete in 2013.

Merger Market

Melancon returned to discuss the strong market in firm mergers and acquisitions. “All merging firms are trying to deal with market forces,” he said. “They’re establishing national brands, sometimes with international components, or dealing with issues of capacity of talent and other capabilities, such as technology.” 

Many larger firms are also interested in establishing a presence in New York and the Northeast.

All that activity, he said, is changing the face of the profession, as is the growing interest in succession planning—though he noted that this was largely limited to the 500 or so firms with more than 20 professionals. “Only a very small percentage of the smaller firms have given any thought to succession,” he said.

He also took the opportunity to note the AICPA’s success in its mobility efforts, with 48 states now allowing CPA mobility, and the two remaining—Hawaii and California—due to come in soon. Then he encouraged members to sign up for the institute’s 2012 MAP survey, which is being co-sponsored by 46 state societies and is still open for participation.

Melancon finished his part of the address by mentioning unspecified products that he has become aware of that are currently in research and development that he expects will revolutionize the way the profession handles audits, which will have “huge ramifications” for firm staffing, 

Finally, Anton rounded out the session by describing some of the institute’s other initiatives, such as his own creation of a task force to encourage CPAs to get involved in volunteerism in retirement; the institute’s recent release of the Total Tax Insights Calculator (see AICPA Online Tax Calculator Estimates Total Tax Burden); and the institute’s creation of a video explaining the fiscal state of the country, which it delivered to members of Congress.

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