Securities and Exchange Commission chief accountant James Kroeker criticized the American Institute of CPAs’ resolution of disapproval against the Financial Accounting Foundation’s proposal to set up a Private Company Standards Improvement Council, calling it a “clear threat to the independence of the FAF.”
At Standard & Poor’s Accounting Hot Topics Conference in New York on Monday, Kroeker called the resolution “egregious.” In the resolution, the AICPA gave its board the option to set up its own board or committee for setting private company accounting standards if the FAF proposal is not significantly modified to exclude the Financial Accounting Standards Board from authority over private company standards (see
Kroeker spoke on a panel alongside FASB chair Leslie Seidman, whose board would retain the authority under the FAF proposal to ratify any changes to accounting standards for private companies recommended by the new council.
“It’s important that the FASB hear from every perspective, both public and private companies,” said Kroeker. “I don’t think there needs to be two different frameworks for public and private companies,” he added.
Seidman said the FAF proposal would keep standard-setting “under one roof” so FASB would have the ability to ratify any changes that the new council would propose and vote to approve. “At the heart of the matter is complexity,” she said. She pointed out that many of the comments that FASB receives on standards such as for revenue recognition are about complexity issues faced by both public and private companies.
Patrick Finnegan, a member of the International Accounting Standards Board, also indicated his support for FASB retaining a role in setting private company standards. “I would argue for a single standard-setter in this arena,” he said.
The panelists also discussed the status of the convergence efforts between U.S. GAAP and International Financial Reporting Standards. Kroeker declined to say whether the SEC commissioners would issue their eagerly anticipated decision by the end of the year on whether or not to incorporate IFRS into the U.S. financial reporting system. However, he noted that when the SEC said last year that it would issue its decision in 2011, there were expectations of much more progress with convergence. He acknowledged that the decision to focus on a few key projects had been helpful, but he also believes they need to agree on how to adopt a common approach in other areas such as hedge accounting. He pressed FASB to work on the hedge accounting issue in particular, which involves accounting for derivatives.
“It makes it difficult to figure out how we move forward without a converged solution,” he said. The SEC is also awaiting a progress report from the IASB on governance changes there, which was one of the pre-conditions for moving to IFRS.
However, he seemed to favor the endorsement approach toward convergence, also known as “condorsement,” in which converged standards are endorsed one at a time into U.S. GAAP rather than having IFRS adopted wholesale.
“U.S. GAAP has served us well for decades,” said Kroeker.
Seidman noted that she has been working with the IASB on the convergence effort, and said that IASB chairman Hans Hoogervorst recently indicated some willingness to re-open the IFRS 9 standards on financial instruments to resolve lingering differences over how marketable securities should be valued.
One of the main issues to be settled is the impairment of financial instruments and loans. “It goes without saying that the impairment project is number one among financial regulatory agencies,” said Steve Merriett, assistant director and chief accountant of the Federal Reserve Board.
He noted that the Federal Reserve is trying to do more forward-looking analysis by leveraging the research done by the Financial Stability Oversight Council, which was established last year under the Dodd-Frank financial reform legislation.
