Audit, Compliance and Risk Blog

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.

For the foreseeable future, the accounting standard setter in the United States, also known as the Financial Accounting Standards Board (FASB), will continue to set generally accepted accounting principles (GAAP) for private companies. The trustees of the Financial Accounting Foundation (FAF), the oversight body of the FASB, recently rejected the concept of establishing a separate accounting board that would prescribe GAAP for private companies, sometimes termed “baby GAAP.” They concluded that the FASB should continue to set GAAP for all companies that report financial results in the United States.

The current rules for lease accounting in the United States go back to 1976 and have been interpreted, modified, amended, and revised numerous times over the years. The existing U.S. accounting standard is complex and, some say, arbitrary because it allows companies to structure transactions to meet the rules of the standard, and helps keep significant liabilities off their balance sheet.