Last summer President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. What does the financial regulatory reform mean for CPAs, and what are some of the other advocacy efforts important to the AICPA?
The new law might be the most massive piece of business regulation in the history of the United States, certainly since the Securities Act of 1933. It’s more than 2,200 pages. To put that in perspective, Sarbanes Oxley was less than 70 pages. So there is a lot in this new law, and a lot more to come as regulations are written and interpretations made that will affect most of the businesses CPAs either work for or serve.
I’m pleased to say, however, that the law does not impose additional regulation on CPAs through the Consumer Financial Protection Bureau. We successfully convinced Congress that the profession is sufficiently regulated.
As the legislation was being shaped, there were also repeated attempts to add language that would have challenged the independence of the Financial Accounting Standards Board (FASB). We were at the forefront of the effort to prevent that. I think it’s fair to say that probably everyone in our profession at one time or another would have preferred a different answer to an accounting standard, but we can all agree that it needs to remain an independent agency.
The Dodd-Frank Act requires federal regulators to issue more than 350 rules and studies. So there are still a number of issues that we will continue to monitor closely, including the nuances of how broker-dealers and hedge funds are ultimately regulated. There are also a number of tax issues that Congress will need to address. The extension of the Bush tax cuts in 2013, the tax ramifications of the healthcare bill, the banning of tax strategy patents and tax reform are just some of them. When you add to those an almost indeterminate number of tax issues at the state and local level, which have a total of something like $2 trillion in unfunded obligations, 2011 is shaping up to be a busy year for tax policy and for our advocacy efforts in this area.
What is the status of the Internal Revenue Services' (IRS) tax-preparer registration program?
The IRS has determined that the best way for it to achieve its two general goals of improving compliance and elevating ethical conduct in the paid preparer community is to require all paid preparers to (1) register with the IRS and obtain a unique number that can be tracked, (2) be subject to the IRS’s (Circular 230) professional ethics rules, (3) pass an exam, and (4) fulfill continuing education requirements -- in effect creating a federal licensing of all tax preparers.
We agree with the IRS’s two general goals of improving compliance and elevating ethical conduct, and we support the first two stipulations – (1) having a trackable number so the IRS can align returns and preparers (together with increased enforcement capabilities), and (2) expanding Circular 230. But we’ve called for a delay of the exam pending the development of a cost/benefit analysis, particularly at a time of immense government deficits. We think that creating an exam will contribute to long-term confusion in the marketplace regarding the relative differences among various types of preparers.
What is the possibility that U.S. GAAP will have differences for private companies?
A blue ribbon panel has recommended just that. Early in 2010 the panel was formed by the AICPA, the Financial Accounting Foundation (FAF) and the National Association of State Boards of Accountancy (NASBA) to address how accounting standards can best meet the needs of private company financial statement users. Its 18 members represented all the various stakeholders from the private company financial world, including bankers, private equity fund operators, preparers, CPA firms and an educator. The panel gave its final recommendations to the FAF in January, including the creation of a separate accounting board to set private company standards (but retaining one GAAP codification) and development of a framework to assess sufficient and appropriate differences for private companies.
This is not a new debate; it goes back at least 30 years. But it’s recently become more intense. As the financial world has gone global and begun to rely on incredibly complex financial instruments, the rules have had to evolve to address this complexity. There are about 15,000 public companies in the United States, and more than 20 million private businesses, having financial statement needs of all different levels. The question becomes, is it appropriate to impose on private companies rules and requirements designed for public companies? Perhaps it’s time to conclude that one size does not fit all.
It’s not like private companies won’t have a choice. Private companies that expect to go public, or have a complex balance sheet, or for any other reason choose to file using “public company GAAP,” will have that option.
Will the SEC continue to move toward adopting International Financial Reporting Standards (IFRS) for U.S. public companies?
Yes, I believe it will. The current IFRS Work Plan is aimed at making a decision this year about setting a date certain for IFRS adoption, which would not take place before 2015.
This is an emotional issue for the United States. Given the weak economy, coupled with the high cost of converting to IFRS, adoption might slip beyond the 2015 tentative date in the SEC’s work plan. Still, the SEC has said it remains committed to a decision sometime in 2011.
The vast majority of countries around the world are adopting IFRS, but they also have reserved the right to make modifications to take into account factors unique to their country. Most countries, while they have reserved the right to make changes, have not in fact made them.
I think what the U.S. does will go a long way toward deciding which way this goes. It helps that the FASB and the IASB are working on a number of convergence projects to minimize the differences between IFRS and U.S. GAAP.
What is the AICPA doing to increase the international stature of the CPA credential?
I believe the marketplace will ultimately recognize a handful of premier international accounting credentials, and we expect the U.S.'s CPA to be one of them. The good news is that the U.S.'s CPA credential starts with a high degree of trust, although we have to make certain that confidence is never lost. So we are simultaneously increasing our visibility globally, and defending our prominence in the U.S.
Both the AICPA and NASBA are jointly committed to working to make sure that the CPA remains a premier accounting credential here and around the world. International candidates already represent about 10 percent of the total number of people who sit for the CPA Exam, and that figure continues to grow. Recently, the AICPA and the National Association of State Boards of Accountancy signed a contract with an international testing company to administer the CPA Exam overseas. The exam, which will be offered in five other countries starting in August 2011, will be the same as the one offered in the U.S., using the same computerized format and administered in English. It is solely of a matter of having international test sites.
What are the important human capital issues you think CPAs need to consider going forward?
In the 1990s, the AICPA recognized that there were human capital changes occurring in the overall business environment. Cross-border movement, changing demographics and generational differences with technology and expectations for work-life balance meant we had to appeal to a different audience. We understand that companies and firms today need to have people and processes that can change directions quickly and act on a moment’s notice. Employers have to be flexible enough to provide their staff with the work-life balance that is so important today. The younger generations work to live, not live to work. They want their time off, time to pursue interests and hobbies, and time with family. They also want to use technology to facilitate working off site. The pace of change will not slow in the next 10-20 years; it is the new normal.
During the past few years we have seen the outcomes of our efforts. For four straight years we have had a record number of people studying accounting, graduating with an accounting degree, and taking the exam, an all-time record in 2010. But we have to remain diligent. We have to continue this momentum for the foreseeable future in order to replace the baby boomers who caused the growth in the profession in the first place, and who are rapidly moving to retirement. The vast majority of the 44,000 CPA firms in the United States have serious succession issues, which is another human capital issue for which we are providing support to our members.
How is the profession affected by changes in technology?
Clearly, the introduction of the microcomputer was the most seminal event in our profession’s history. Since then, the movement of data on the Internet and the email environment has shrunk the world and made everything accessible to everybody, profoundly changing how we work and serve clients and employers.
But now comes another big event that could rival the impact of any of these technological advancements. Cloud computing has the ability to change the relationship between CPAs and their clients, particularly small firms and small businesses. In the not so distant future, CPAs will have no clients at all who have general ledger packages in their offices. Yes, there is still a number of security, reliability and confidentiality issues, but they are being solved. This is something that if you are in this profession, you need to take a look at and ask yourself, what are the implications of cloud computing for your clients if you are in public practice, or for the company you work for if you are in business and industry. From a reporting and large company standpoint, XBRL also is changing the landscape.