This is my third and final blog article on my thoughts on developments that may occur in 2013 in “Accounting Land” in the United States. I cover the activities at the Securities and Exchange Commission (SEC), the Public Company Oversight Board (PCAOB), the American Institute of Certified Public Accountants (AICPA), and, finally, the Governmental Accounting Standards Board (GASB).
Appointment of a Commissioner and a Chief Accountant
The SEC will continue to address many financial reporting issues for companies subject to SEC oversight but will do so with new individuals appointed to key roles.
Currently, the SEC is missing one of its five voting commissioners that are appointed by the U.S. President with the advice and consent of the U.S. Senate. On January 24, 2013, U.S. President Barack Obama nominated Mary Jo White to replace the former Democratic chairman, Mary L. Schapiro, who left the commission in December 2012. Since several recent SEC actions have been approved on a 3 to 2 vote, the change in leadership could prove to be interesting. Will the new chairman, if confirmed, continue to lead the SEC with frequent split voting or will she seek a different tone and direction? While I believe the U.S. Senate will likely confirm Ms. White, time will tell what direction the SEC will take. By way of background, the legislation that created the SEC in 1934 requires the U.S. President to appoint commissioners in such a manner that no more than three of the commissioners are from the same political party.
Separately, Paul A. Beswick was recently appointed as the new chief accountant of the SEC replacing James A. Kroeker who resigned last summer to rejoin the private sector. However, the role previously held by Wayne Carnall, chief accountant in the SEC’s Division of Corporation Finance, remains open. Look for this position to be filled in the next several months by a person who currently works inside the SEC but has significant experience in the private sector.
Required Dodd-Frank Rulemaking
The SEC is lagging behind in issuing congressionally mandated regulations to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Congress passed this legislation nearly three years ago, directing the SEC to develop many of the detailed rules and regulations required for implementation. Look for significant Dodd-Frank-related rulemaking from the SEC this year. So far, much of this rule-making has been approved on a partisan 3 to 2 vote.
Allowing U.S. Registrants to Use IFRS
The staff in the SEC issued a report last summer on whether a U.S. registrant should be permitted or required to use accounting principles developed by the IASB, termed International Reporting Standards or IFRS. As described in a previous blog article, the SEC staff did not make a recommendation; rather, it “punted” the decision.
Most of the concerns and issues in that SEC staff report are still outstanding, so don’t expect any further action by the SEC this year. That said, I expect a few U.S. registrants to start preparing and then making their financial statements available to shareholders on both a U.S. generally accepted accounting principles (GAAP) and an IFRS basis—potentially with side-by-side comparison. While the SEC will likely not allow such a presentation in actual SEC filings, such companies might provide investors this data outside of SEC filings, say, in an “investor alert.” Depending on the number of companies that do this in 2013 and what the side-by-side comparison shows, the SEC may have impetus to consider allowing U.S. registrants to use IFRS reporting.
The standard-setter for auditors of public companies, the PCAOB, is considering whether companies subject to its oversight should periodically be required to change auditors, as discussed in more detail in my prior blog article, “Where Is the Regulator of Auditors of Public Companies?” While only a concept release has been issued so far, a proposed rule is possible. However, once the PCAOB considers all the comments it has received on the concept release, look for the idea to go to the “back burner.” The PCAOB will likely back away from the proposal for such a dramatic change and will move on to address other issues in 2013.
The standard setter for auditors of companies that are not subject to PCAOB oversight is the AICPA. Last year, the AICPA’s new clarity auditing project rules took effect. These rules were a complete rewrite of the AICPA auditing standards, making them easier to read and apply (hence the term “clarified”) as well as conforming them with the standards issued by the International Auditing and Assurance Board. The AICPA believes that the updated rules did not create additional requirements. However, after auditors used the revised rules for a few months, some potential ambiguities and (or) unintended consequences might have surfaced, possibly necessitating changes or clarifications to the new rules.
Separately, while the AICPA is no longer an accounting standard setter, it has proposed an optional new financial reporting model for small and medium-sized entities. It effectively is an expansion of the concept of “other comprehensive basis of accounting” (OCBOA) that a company might use when it does not require GAAP-basis financial statements. The concept of OCBOA financial statements is provided for in the AICPA’s auditing literature rather than in the
FASB’s accounting literature. The AICPA’s exposure draft for its proposal was issued on November 1, 2012, and the AICPA is seeking comments through January 30, 2013. Time will tell, but I do not believe this concept will be widely used even if finalized by the AICPA. The use of OCBOA statements by some smaller companies is already in place, but the statements are typically either cash-basis financial statements or income tax-basis financial statements—something a CPA can apply and a reader understand without a lot of fanfare.
What the AICPA is proposing is yet another complete framework and, to borrow the phrase frequently used by the distinguished and outspoken James J. Leisenring, a former FASB board member and subsequently IASB member, the “concept is fundamentally flawed.” My view is CPAs do not want to have to learn yet another set of GAAP with the possibility of international accounting rules on the horizon. That said, the IASB has finalized a similar concept—IFRS for small and medium-sized businesses. However, unlike the AICPA proposal, the IASB concept was developed by the same standard setter that issues normal IFRS, not from an auditing standard setter!
The standard setter in the United States for state and local governmental entities is the GASB. I covered the recent changes being made for pensions in my prior blog article, “New Accounting Principles for State and Local Government Pensions.” Those changes are not currently effective.
In 2013, expect the GASB to issue a proposed rule on how benefits promised to employees for retiree health care and similar benefits should be accounted for. The GASB believes its proposal will be issued in August, with a final rule to be issued in June 2014. While the GASB may achieve its goal of issuing a proposed rule in 2013, but probably later than August, don’t bet that a final standard will be issued in the summer of 2014. Like the new GASB pension accounting rules, the GASB’s new proposal will be very controversial and retirees probably won’t like it.
The GASB also plans to finalize, in 2013, rules on financial guarantees based on an exposure draft it issued in June 2012, plus a standard on government combinations that was exposed for comment in March 2012. Due to the small number of comment letters received by the GASB on these two proposals, look for the GASB to achieve its goal of finalizing these standards as scheduled.
About the Author
Ron Pippin is an experienced CPA based in Wheaton, IL. His 40 plus year career includes being an audit partner in Arthur Andersen, a member of Andersen’s Professional Standards Group (“national office”) in Chicago, the Director of Financial Reporting for a Fortune 50 company and most recently, the editorial director of CCH’s Accounting Research Manager. Currently, Ron does independent writing and analysis together with accounting consultation on a variety of topics.