The American Institute of CPAs marked its 125th anniversary during its Spring Meeting of Council, with meetings on Capitol Hill and the White House with lawmakers and policymakers, capped off with a lavish black tie reception.
AICPA president and CEO Barry Melancon reminisced Wednesday at the conference about the long history of the Institute. “Who could have imagined 125 years ago where our profession would be today?” he asked. “Our clients used to be the people in our communities, next door, around the corner, but now they’re global.”
He also looked ahead, speculating on how the AICPA might look on its 250th anniversary, with a video chat with a purported CPA from the future. Melancon and AICPA chairman Greg Anton presented video clips of past AICPA chairmen and CPA profession leaders talking about the challenges and initiatives they tackled during their careers.
He noted that the AICPA visited the White House on Wednesday morning to talk with some of President Obama’s economic advisors. According to Melancon, they talked about risk management in the wake of the JPMorgan Chase multibillion-dollar trading loss, as well as tax reform.
“The key questions that the leading economic advisors to the President asked about were risk management, and the opportunity for the profession, both inside corporations and from an assurance perspective, to be much more involved in processes and metrics around risk management that are critical to the successful operation of a business,” said Melancon.
Anton accompanied him on the visit. “Technology has totally transformed how I do business,” he said. “I can conduct business anytime using my iPhone from anywhere, except the White House. They take it away from you when you walk in.”
Melancon also talked about some of the challenges confronting the profession today, including the recent proposals by the Public Company Accounting Oversight Board for mandatory audit firm rotation. That led to a recent PCAOB roundtable meeting in Washington with leaders of the profession, along with a congressional hearing, and plans for further roundtable meetings hosted by the PCAOB across the country. Melancon noted that there have been similar proposals in Europe and other parts of the world for mandatory firm rotation that could have an impact in the U.S., even if the PCAOB is dissuaded from requiring public companies to rotate their auditing firms periodically.
“During those hearings in Washington, I think it’s safe to say that the members of the congressional committee raised serious concerns about whether or not mandatory firm rotation was the right answer, or even an answer, to something that needed to be addressed in today’s environment,” said Melancon. “We look at the activities in Europe and there is certainly the potential in this area, if it were to take place, to have an impact in the U.S. markets by regulation outside of our country. Dual-listed companies, for instance, if they were required to change auditors outside of the U.S., then obviously they would have to make changes here as well. We’re already seeing some impact in private companies where boards and others are saying, ‘Maybe we should have some type of rotation from that standpoint.’ These are issues that are in play that potentially could cause significant evolution in the audit process as well.
"To some degree, Europe is watching the U.S., the U.S. is watching Europe, and how these things play out demonstrate the international impact," Melancon added. "We would think that, absent some major concerns, something else will evolve other than mandatory rotation, but it is happening in some places in the world.”
He noted that the Netherlands is very close to passing legislation requiring mandatory firm rotation, while Brazil has passed legislation requiring rotation in certain areas, and in China the state requires mandatory rotation.
Private Company Accounting Standards
Melancon also discussed the issue of private company accounting, noting that the Financial Accounting Foundation plans to hold a meeting next week to decide on its proposal for setting up a Private Company Standards Improvement Council. “Next week the FAF will reach a conclusion based on the more than 10,000 letters and feedback that have come in from our profession on the need for differential standards for private companies,” said Melancon. “We don’t know the exact outcome of what they will produce. We’ve obviously had a lot of dialogue. Certainly the response from the grass roots has been absolutely phenomenal.”
The AICPA has been engaging in a letter-writing campaign, encouraging members and state CPA societies to push for a separate board for determining accounting standards for private companies, separate from the Financial Accounting Standards Board. In late 2009, the AICPA, along with the FAF and the National Association of State Boards of Accountancy, set up a Blue-Ribbon Panel on Standard Setting for Private Companies, which issued a report about a year later calling for the establishment of a separate board under the oversight of the FAF.
Last fall, the FAF proposed setting up a Private Company Standards Improvement Council, which would replace the Private Company Financial Reporting Committee and would have the ability to vote for and recommend changes in standards for private company accounting. However, according to the FAF exposure draft for the proposal, the new council’s recommendations would be subject to ratification by FASB, which the FAF oversees, so there would not be a separate board.
The AICPA has said that proposal is insufficient and does not go far enough in meeting the recommendations of the Blue-Ribbon Panel report. The final decision on the shape and powers of the council is expected to be made at the FAF meeting on May 23.
“We are hopeful, and there are some indicators that the report that they will issue or the model that they will adopt will be something that we believe can produce differential standards,” said Melancon. “It is not going to be what the Blue-Ribbon Panel recommended, but it’s also not likely to be what was exposed. It will evolve and we’re hopeful that that evolution will be something that really gives us an opportunity to have those differences. We’ll keep you posted. In a week or so, we’ll know more.
“Regardless of the exact structure, this profession must remain engaged in making sure that the relevancy of financial reporting works for all size companies,” Melancon added. “We have significant differences in the size and approach of businesses, and we cannot forget the fact that 50 percent of the U.S. economy is private businesses. We must be the voice to ensure that relevancy can be achieved on that side as well.”
IFRS Uncertainty
Melancon also discussed the status of International Financial Reporting Standards, and the Securities and Exchange Commission’s long-delayed decision on whether or not to incorporate IFRS into the U.S. financial reporting system. The SEC was originally supposed to make a decision by mid-2010, and then the deadline was pushed back to last year. Since then, the SEC staff has released work plans and proposals for how IFRS might be incorporated into U.S. GAAP, perhaps by the process known as “endorsement” in which standards are incorporated one at a time, along with reports comparing how IFRS is applied around the world by different companies, and the remaining differences between IFRS and U.S. GAAP.
SEC chief accountant James Kroeker said last December at an AICPA conference that the SEC would need a few additional months, and the SEC is expected to issue at least a report or statement in the near future. But Melancon does not anticipate a definitive answer until after the November election.
“The SEC has a daunting agenda in a post-Dodd-Frank world,” he said. “There have been releases that have been put forward from the standpoint of concept releases or thought pieces that have received feedback from the marketplace to the SEC. We’re also today living in an election year, and so the likelihood of any kind of response is somewhat not determinative. There’s a good chance it won’t be until after the elections. And from that standpoint, how we evolve is still uncertain as well. The SEC is the decider in this particular environment.”
Tax Reform
Melancon also discussed the prospects for tax simplification and reform, which was one of the topics that came up in the meeting at the White House with the President’s economic advisors. “In the near term, this debate about tax simplification will go on, and we will be a major player in that discussion,” he said. “At our meeting this morning, it was part of our discussion as well.”
He noted that one of the AICPA’s legislative priorities for tax simplification on the state income tax side for people who work in multiple states was approved by a voice vote on Tuesday in the House (see
Melancon believes that technology will have a profound impact on the tax preparation field. Cloud computing and mobile applications are already playing a greater role. On Tuesday, the AICPA introduced an online tax calculator that will estimate a taxpayer’s total federal, state and local taxes (see
Melancon noted that there have been proposals for a system in which the IRS would keep track of all income and transactions and simply send a tax bill to a taxpayer as a way to reduce the so-called “tax gap” between taxes owed and actually collected. He speculated that such a system might actually increase the tax gap since many transactions go unreported. However, he believes that the role of the tax practitioner will be evolving from simply preparing income tax returns to providing more high-level services such as tax planning for clients.
Melancon also described the AICPA’s continuing efforts at financial literacy education through its Feed the Pig advertising campaign in conjunction with the Ad Council and its 360 Degrees campaign.
Expanding the Membership
He also emphasized the challenges faced in adding more diversity to the accounting profession.
“Entrepreneurial capital is being owned at a rapid rate by diverse ethnic backgrounds in this country and throughout the world,” he said. “Our profession’s permission in the marketplace to be able to serve that entrepreneurial capital, which is what we do, is going to be affected by how well we succeed or don’t in creating a more diverse profession. It’s not a political imperative, it’s an economic imperative.”
AICPA vice chairman Rich Caturano, the managing partner of McGladrey’s Boston office, is leading an effort to expand diversity in the CPA profession, and he plans to bring together a group of leaders this fall to examine what strategies work.
Melancon noted that the CPA profession had seen declining numbers in the 1990s, and the AICPA made an investment in programs like This Way to CPA and Start Here, Go Places to attract younger people to the profession. Those efforts were successful, and by 2009 there were record numbers of people majoring in accounting, both in bachelor and master’s degree programs. In 2010, there were all-time record numbers of people taking the CPA Exam, and today there are a record number of members of the AICPA.
More recently the AICPA has been expanding internationally through its joint venture with the Chartered Institute of Management Accountants to offer the Chartered Global Management Accountant credential. They began offering the CGMA for free to CPAs with management accounting experience at the end of January. Melancon reported that so far, more than 13,500 CPAs have signed up for the new credential.
