Audit, Compliance and Risk Blog

As 2012 comes to a close, it is time for accountants in the United States to reflect on new financial reporting rules or developments and what may transpire in 2013. This is the first of two blog articles on the topic. In this article, I cover accounting developments in the United States and internationally. The second article will cover Securities and Exchange Commission (SEC) developments and auditing developments.

Ever since the passage of the Sarbanes-Oxley Act of 2002 (SOX), the concept of internal control over financial reporting has taken on a new meaning. The U.S. Congress passed this legislation in part because of the failure of certain large companies, notably Enron and WorldCom, which met their demise in part because of real or perceived weaknesses in company internal control and less than adequate corporate governance. SOX reinforces the concept that company management is responsible for establishing and maintaining an adequate internal control structure and robust procedures for financial reporting.

Accountants in the United States are in demand once again. There are specific needs at the Financial Accounting Standards Board (FASB) and the U.S. Securities and Exchange Commission (SEC). Separately, the skills and talents of those CPAs that practice in the “income tax world” will be helpful to address scheduled individual income-related issues as year-end looms.

As discussed in my prior blog item, the staff in the Securities and Exchange Commission (SEC) did not make a recommendation to the commissioners of the SEC on whether U.S. registrants should be required or permitted to use International Financial Reporting Standards (IFRS). I termed it a “punt.” On October 22, 2012, the IFRS Foundation staff published an 84-page analysis of this SEC staff report. In the press release announcing issuance of the IFRS Foundation staff report, Trustee Chairman Michel Prada observed that there are “no insurmountable obstacles for adoption of IFRS by the United States.”

The Public Company Accounting Oversight Board (PCAOB) was created by the U.S. Congress as a result of passage of the Sarbanes-Oxley Act of 2002 (SOX). Some believe that the PCAOB has been sleeping, because its recent activity has not been very visible. But as discussed below, the board is addressing many complex and sometimes highly controversial changes to the auditing profession.

It has been more than two years since the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued their joint proposal on lease accounting. In fact, the proposal was issued on August 17, 2010, and the boards were seeking comments on their proposal by December 15 of that year.

The liability associated with a company’s defined benefit pension has always been hard to measure and, as a result, controversial. Companies in the private sector in the United States were forced to “bite the bullet” on this issue many years ago—in fact, it was in 1985 when Ronald W. Reagan was president.

On July 27, 2012, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2012-02, Intangibles—Goodwill and Other (Topic 350), “Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 employs a qualitative concept that is similar to the one developed in ASU 2011-08, Intangibles—Goodwill and Other (Topic 350), “Testing Goodwill for Impairment,” which was issued on September 15, 2011. While the FASB’s issuance of these standards gives companies an option when testing indefinite-lived assets and goodwill for impairment, does it really make impairment testing easier?

On July 13, 2012, the staff in the Securities and Exchange Commission (SEC) issued its long-awaited study on developing and executing the February 2010 “Work Plan” to consider whether and possibly how registrants should incorporate International Financial Reporting Standards (IFRS) into the U.S. reporting system.

Many thought the SEC staff would recommend to the commissioners of the SEC an approach that would either require a certain path to migrate U.S. registrants from generally accepted accounting principles that are developed and issued in the United States (U.S. GAAP) to IFRS or some other path. However, the SEC staff made no such formal recommendation.

On July 1, 2012, the “Codification” of the Financial Accounting Standards Board (FASB) “celebrated” its third birthday. While CPAs around the world probably did not recognize this event by having cake or singing “Happy Birthday,” or giving gifts, it does prove that conservative accountants can make adjustments to the way they perform their research. Normally, CPAs do not like change but they accepted the FASB’s Accounting Standards Codification reasonably well. If the United States opts for change and decides to follow the accounting rules of the International Accounting Standards Board (IASB) rather than accounting rules of the FASB, the U.S. accounting profession will likely adapt as well—with a wrinkle here and there.