Accounting for 2011: A Midyear View

24.06.2011
As the year's midpoint approaches, 2011 is promising to be a turning point for financial reporting -- and for its impact on business. The combination of the SEC's promised guidance on International Financial Reporting Standards, and the Financial Accounting Standard Board's decision on private-company reporting standards, is sure to keep finance executives awake at night. The impact of such changes is potentially monumental.

At the AICPA, president Barry Melancon and chairman Paul Stahlin during a recent presentation of the group's annual Public Practitioner and Tech+ Conference. Our profession faces two conflicting mindsets as regulators and standard-setters develop their agendas. On one hand, U.S. laws and regulations are more complex today. As the Accounting Today article states, the Dodd-Frank bill is over 2,300 pages while Sarbanes-Oxley was less than 70 pages. Rules and regulations are forcing audit committees and finance teams to digest huge amounts of information. Meanwhile, many of the accounting standards proposals would move away from rules-based applications and toward more subjective, principles-based activities. It's hard to focus on the minute details of one set of rules while considering how to interpret broad standards in another set of activity!

Privately-held companies will face a particularly hard situation, because they must balance IFRS and Dodd-Frank with an unusually cloudy outlook on private company standards. There is no question that smaller companies should have standards that are less complicated than traditional GAAP. The time and cost of complying with the same GAAP used by the largest companies in the U.S. is not justified from a cost/benefit perspective. The problem lies with FASB's widely divergent focus. When the FASB concentrates on private company standards at the same time as considering how to adopt IFRS, what will the quality of their final decisions be?

As these changes take shape, we must focus on the overriding goal of better financial reporting. What will provide our investors, customers, suppliers, and employees the information they need to do business with us? While we must continue to react to regulatory changes, we must also be proactive, and anticipate how to provide the right financial information to our stakeholders.

At the same time, we must make our voices heard among the standard setters and regulators. If the rulemakers make the rules in a vacuum, then we will be stuck with a mess of standards that may not be cost-effective. The time is now to balance the needs of the public with our own abilities to run our businesses effectively.