Posts filed under 'Accounting'

SEC Strikes the Right Tone on IFRS

Investors should be well-pleased with the SEC’s newly-approved list of factors to be considered before any decision is made about whether and how International Financial Reporting Standards (IFRS) might be incorporated into the financial reporting system for U.S. issuers.

Overall Approach

The SEC’s overall approach to IFRS decision-making was approved at an open meeting on February 24, 2010. Led by Chief Accountant Jim Kroeker, the Commission’s staff presented a carefully crafted work plan designed to protect the masses of U.S. investors who might need to learn a second accounting language, if the SEC were to permit the use of IFRS for domestic reporting. Among other things, the SEC’s plan calls for careful consideration of the following factors:

  • Sufficiency of development and consistency of application of IFRS.
  • Adequacy of investor understanding of IFRS.
  • Acceptability of the impact on issuers of all sizes, including the costs and timeframes needed to adapt accounting systems, corporate governance practices, and litigation considerations.
  • Desirability of the impact of a switch to IFRS on the entire U.S. regulatory environment, including other forms of reporting, such as tax reporting.
  • Readiness of all the various players in the financial reporting process, including regulators and enforcement agencies.
  • Sustainability of the accounting standard-setting processes in the U.S. and at a global level.

Investors’ Interests and Trust Are Key

Remarks by SEC Chairman Mary Schapiro and Commissioner Luis Aguilar indicate that investors’ interests and trust will be high on the list of key considerations before IFRS gets a green light for domestic U.S. reporting.

Chairman Schapiro noted that any such go-ahead would represent a significant undertaking. She cautioned that, “We must carefully consider and deliberate whether such a change is in the best interest of U.S. investors and markets.” Commissioner Luis Aguilar added that, “If we move forward with IFRS, it will be because we have determined that… U.S. investors can trust the numbers.”

The critical factors in Aguilar’s view include whether IFRS will provide investors with higher quality information than U.S. GAAP, whether IFRS can be as rigorously audited and enforced as U.S. GAAP, and whether the benefits to investors will justify the costs to preparers of financial statements. Stressing that it is too early to say whether U.S. financial reporting will move to IFRS, Aguilar said that the promise of a single set of globally accepted accounting standards is worth pursuing and that the SEC is committed to working toward a responsible, informed decision that is in the best interests of investors.

Well said, Chairman Schapiro and Commissioner Aguilar. The Center for Financial and Accounting Literacy applauds the SEC’s progressive yet practical approach to evaluating possible use of IFRS by U.S. issuers.

Add comment February 24th, 2010

Accounting Standards Codification Affects Quarterly Reports

Now that the US Accounting Standards Codification is live and operational, investors in public companies that report under US generally accepted accounting principles (GAAP) can look forward to subtle but important improvements in financial reporting. The Codification could lead to more plain-English explanations and less technical jargon in the notes to the statements starting with quarterly reports for third quarter 2009. Public companies are weighing the merits of a move in that direction now.

The movement toward plain-English disclosures is especially important for US companies and investors. The US differs from other countries in that more half of our population is invested in the stock market, and there is considerable diversity among the users of financial statements. At one end of the spectrum are sophisticated financial analysts and big institutional investors who may be fully conversant with the underlying accounting standards. At the other end are individual investors, some of whom may have a tougher time sorting through the notes and references to related standards. The latter would benefit greatly from the types of plain-English explanations that enhance transparency and understanding.

To help users of financial statements understand the issues, the Center has published a summary of the changes brought by the Codification, the answers to frequently asked questions, and the issues being discussed today by companies and their boards of directors. The complete article is available at http://www.fincenter.org/Accounting_Codification.htm.

Add comment August 22nd, 2009

In Memoriam: Benjamin Neuhausen

Seldom does the world see an accountant with such an engaging leadership style. From FASB fellow to Andersen partner and AcSEC chair, Ben Neuhausen was that rare breed of accountant who could thrive amidst the pressures of the technical side of public accounting. When clients, co-workers, or professional colleagues approached him with questions, they could sense his genuine interest in the issues; and his knowledgeable interactions with them would always leave a lasting impression, no matter what their individual areas of expertise.

Ben lost his courageous battle with cancer last week. His influence in the profession and in our lives will be missed by all, and especially by me. I had the good fortune to meet Ben when he was national accounting director of a major accounting firm. In that role, he became my boss, co-author, confidante, and friend for six years from 2003 through 2009.

In honor of the special role that Ben played in the accounting profession, the Center for Financial and Accounting Literacy has published a memorial tribute that includes a profile of his accomplishments and a summary of his views. The complete article is available at http://www.fincenter.org/Ben_Neuhausen.htm.  

Copyright © 2009 Center for Financial and Accounting Literacy

 

Add comment August 5th, 2009

Codification gets warm welcome

The FASB’s Small Business Advisory Committee expressed enthusiasm about the upcoming Accounting Standards Codification during the group’s meeting on June 5, 2009. If used as intended, the Codification will facilitate a better understanding of financial statements as today’s esoteric alphabet soup of technical references is replaced with more plain-English explanations in the notes to financial statements and other parts of SEC filings. But uncertainties about reactions by accounting firms are causing concern. 

Keys to success: Discussions at the June 5th meeting provided insights into how and when the Codification should be used by companies, auditors and regulators:  

  • The FASB expects to finalize the Codification and make it available for use on July 1, 2009. To provide a smooth transition, the Codification will be effective for financial statements for periods ending after September 15, 2009. A key concern for companies is the extent to which technical references will be permitted and/or required in the coming months by their auditors and the SEC. 

  • Accounting firms differ in their advice on the use of technical references. One member of the Small Business Advisory Committee said his firm has already advised its audit clients that they won’t need to mention specific technical accounting pronouncements, (such as FASB Statement No, 109), after the Codification is effective. This appears to be a best practice, but other firms may undermine the benefits of the Codification by encouraging or even insisting on dual references to both the traditional pronouncements and the Codification. 

  • SEC spokesperson Jenifer Minke-Gerard stressed that the SEC staff in general and the staff of the SEC’s Division of Corporation Finance in particular are great advocates of dropping the technical references and replacing them with plain-English explanations. But, she said, Corp Fin intends to take a “practical approach” to compliance. 

  • Further clarification may be forthcoming in the near future. Jenifer added that the SEC staff expects to issue some interpretive guidance in July 2009 and that the staff will likely undertake a clean-up approach to its own literature with an eye toward dropping what she described as the current “hard-wiring” of technical references into the literature. 

The format of the Codification will take the form of an interactive web-based tool, rather than a document that can be downloaded in its entirety. This format is designed to improve access to US accounting standards and simplify the sometimes tedious process of researching the standards that apply to a particular situation. A print version will be available sometime in late August or early September. 

A preview of the Codification is available now at http://asc.fasb.org/home. For more information on the Codification, see my article in the June 15, 2009 edition of the NY State Society of CPAs’ newsletter, The Trusted Professional available at http://viewer.zmags.com/publication/8030f56e#/8030f56e/2.  

Copyright © 2009 Center for Financial and Accounting Literacy 

Add comment June 5th, 2009

EU Commissioner cites accounting challenges

European Commissioner Charlie McGreevy summed up the practical challenges involved in internationalization of accounting standards in his keynote address at the “Financial Reporting in a Changing World” conference in Brussels on May 7th. His remarks focused in part on the lessons learned from the financial crisis and the future direction of accounting and financial reporting. The challenges cited by McGreevy:

  • The need for accounting standard-setting to be both independent and “fully accountable.” 

  • The need to overcome perceptions of a “lack of flexibility on the part of the IASB to adapt or react rapidly.”

  • The notion that “accounting rules should not be seen in strict isolation from prudential rules and other reporting requirements.

 Copyright © 2009 Center for Financial and Accounting Literacy

 

 

Add comment May 7th, 2009


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