International convergence of accounting standards is on the not-too-distant horizon and every CPA—whether you work with Main Street businesses or international corporations—should be aware of the changes taking place. Most CPAs are probably already aware that the Financial Accounting Standards Board and the International Accounting Standards Board are converging their standards to achieve greater consistency and implementation internationally. This effort will create substantive changes that will have a broad impact on CPAs and the companies and clients with which they work. In this column, I’d like to talk about a few significant current convergence projects.
The FASB and the IASB’s project on revenue recognition standards could have a momentous impact on how companies disclose revenue, account for transactions and even how they set up contractual arrangements with customers. This will obviously also change practice for the CPAs who work with them. The boards now plan to re-expose an exposure draft with revised proposals after receiving nearly 1,000 comment letters on their original ED. A new ED is expected in the third quarter of this year, and the boards said they’ve made meaningful changes to their first proposal in a number of areas.
In the boards’ financial instruments project, their original proposal would have required accounting for all financial instruments, including loans, at fair value, a controversial requirement that generated numerous comments and quite a bit of media attention. The boards have subsequently narrowed many of their original proposals, ultimately issuing a supplementary document in January that sought feedback on a proposed impairment model. There were many diverse and sometimes critical comments on this document as well, and the boards later published a discussion paper on issues related to hedge accounting. At this writing, it was not certain when we would see another comprehensive ED that would incorporate the input received so far.
The project on accounting for leases is another high-profile FASB/IASB undertaking. One significant provision would establish that both lessees and lessors must apply a right-of-use model in accounting for all leases. This project also provoked lively debate, with the boards receiving nearly 800 comment letters articulating numerous concerns. They are now making significant changes to the original proposal in areas affecting short-term leases, lease terms, variable lease terms, lease definitions, lease classifications and sale and leaseback transactions. They continue to discuss a number of other facets of the proposal and, in fact, on July 21 announced their intention to re-expose revised proposals later this year.
The AICPA’s Financial Reporting Executive Committee has been on top of all the issues involved, offering the profession’s perspective on these and other convergence projects. To learn more about FASB/IASB convergence, visit the AICPA’s Financial Reporting Center
Moving to a very different set of financial reporting concerns, I want to remind CPAs that they still have the opportunity to be a part of historic change aimed at bringing greater relevance and usefulness to private company financial reporting. The Financial Accounting Foundation, which oversees the FASB, is now gathering input on proposals made by the Blue Ribbon Panel on Private Company Financial Reporting
. This prestigious group’s two main recommendations called for differential standards for private companies and a separate board to set those standards. The AICPA strongly endorses those recommendations because we believe that they will result in financial reporting that better meets the needs of private company financial statement users. I urge you to turn to our dedicated site – aicpa.org/privateGAAP
– for more information, including a PowerPoint and backgrounder/handout you can use to update clients, business contacts and staff on this important initiative. We are asking CPAs to send a letter to FAF and to encourage private company clients, bankers and other lenders, venture capitalists, sureties and insurers, and your own staff to make their voices heard as well. You’ll find a handy letter-writing tool
on the site to simplify this task.
This is obviously an exciting time for the profession, America’s small business and other stakeholders concerned with the health of private enterprises. As events unfold, we will continue working to keep our members informed and to advocate for needed change.
In trying to move the profession forward, we appreciate your support. Thank you.