MACPA Accounting Standards Task Force Report - CPAsummit2011
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The time is now! MACPA task force supports creation of private company standards board, says GAAP exceptions and modifications are essential to meet the needs of private company users of financial statements and reduce overly complex and unnecessary accounting standards. A panel of task force members presented their report, recommendtaions and analysis at the MACPA CPA Summit on June 3, 2011 at the BWI Hilton Hotel in Maryland. The report was accepted and endorsed unaimously by the MACPA Board the day before.
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MACPA Accounting Standards Task Force Report - CPAsummit2011
- 1. PRIVATE COMPANY STANDARDS – IS IT TIME? Presentation for: Maryland Association of CPAs CPA Summit June 3, 2011 BWI Hilton
- 2. Our Panelists All members of the MACPA Private Company Standards Task Force Skip Falatko, CPA – MACPA Art Flach, CPA – Grant Thornton Joselin Martin, CPA – Hayles & Howe, Inc Carl Kampel, CPA – Ellin & Tucker, Chtd
- 3. US Treasury MD Comptroller MD Comptroller MD Comptroller CAQ Courtesy of the Maryland Association of CPAs – 2008 edition Drawing by Carol Kirwan, CPA
- 4. Another way to look at standards & oversight Public Company Private Company Int’l Company Financial SEC FASB IASB Reporting FASB PCFRC IFRS & SME Audit /Attest AICPA Performance Standards PCAOB ASB, ARSC, IAASB PRB Code of AICPA AICPA Conduct PEEC PEEC IFAC CPA State Oversight & Enforcement of CPA License Licensure
- 5. The Players SEC FAF BRP FASB GASB PCFRC & State Boards & State CPA Societies
- 6. Additional Background Info 15,000 issuers and 28.5 million private companies but GAAP driven by public company issues Small businesses employ more than half of all private sector workers Private companies and their financial statement users have information needs that are different than public companies
- 7. Similar Issue Outside the US Too
- 8. Concerns About Private Company Financial Reporting Include: Too many GAAP-specific requirements not useful or relevant for private companies Greater FASB emphasis on public companies Increased cost, complexity, time- consuming using full GAAP Use of OCBOA raises the issue of what’s “generally accepted”
- 9. U.S. Answer: Blue Ribbon Panel on Private Company Financial Reporting Address how accounting standards can best meet private company financial statement users’ needs Determine future of GAAP standard-setting process for private companies Sponsored by AICPA, FAF and NASBA 18 panel members: cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors
- 10. Blue Ribbon Panel’s Conclusions A problem exists that needs resolution Recommendation #1 - Enhance GAAP for private companies by making significant modifications, where warranted Recommendation #2 - FAF should create a separate private entities accounting standards board
- 11. Other Key BRP Recommendations Framework for differential decision criteria 3-5 year sunset review to determine effectiveness of new board 5-7 board members $4-5 million annual budget
- 12. FAF “Working Group” FAF created a “Working Group” on March 4, 2011 Comprised of FAF Trustees and FAF Staff Added non-profits to the mix
- 13. 90.87% of MACPA members believe we need Private Company Standards Insights form the Spring & Fall, 2010 PIU / town hall meetings covering 2,000+ members
- 14. Judy O’Dell chair of FASB PCFRC shared her perspective The MACPA requested that private company’s be exempt from Fin 48 and Fin 46R in September, 2008. The PCFRC’s recommendations were ignored by FASB.
- 15. MACPA’s response MACPA sent comment letter to FAF on December, 2010 for initial survey MACPA Chair Kimberly Ellison-Taylor appoints special Accounting Standards Task Force Accounting Standards Task Force held meetings from Jan – Apr, 2011
- 16. MACPA Accounting Standards Task Force – The power of “We” Chair: Art Flach Grant Thornton Public accounting firm MACPA Facilitators: Tom Hood MACPA CEO & Executive Director Non-Profit Jackie Brown MACPA COO Non-Profit Skip Falatko MACPA CFO Non-Profit Task Force Members: Ernie Paszkiewicz Gross Mendelsohn & Assoc. Public accounting firm Rob Tuggle BB&T Banking Bill Ziegler BB&T Banking Carl Kampel Ellin & Tucker Public accounting firm Joselin Martin Hayles & Howe Private company Liz Gantnier Stegman & Co. Public accounting firm Bob Tarola Right Advisory Public company consultant Mike Manspeaker Smith Elliott Kearns & Company, LLC Public accounting firm Ken Kelly McCormick Public company Don McConnell KCI Private company Jim Canalichio Dixon Valve Company Private company Jim Jenkins Stout Causey & Horning Public accounting firm Al DeLeon DeLeon & Stang Public accounting firm Debra Busk DeLeon & Stang Public accounting firm Charles Postal Santos, Postal & Co. Public accounting firm Jim McKinney University of Maryland Educator OJ Phillips Small Business Administration Government
- 19. Draft conclusions – approved by MACPA Board Private Company Standards need to be addressed (costs, complexity, OCBOA) Current structure is not working – PCFRC recommendations were not addressed, prior studies indicate issue Other jurisdictions around the world recognizes needs of private company users are different
- 20. TASK FORCE ISSUES Concept of differences in recognition and measurement Separate Board Funding source to ensure independence Collaboration with FASB How much divergence Disparity of interests, small vs. large
- 21. TASK FORCE ISSUES Effect of increasing complexity Revenue Recognition Leases IFRS Is it too much? How does everyone become knowledgeable – Bankers, sureties and other users
- 22. TASK FORCE ISSUES What is the future role of the FASB? Input and support to IASB. Advancing considerations of U.S. perspectives Incorporating IFRS into U.S. GAAP through an endorsement process Educating U.S. constituents about IFRS
- 23. New Developments AICPA launches Private Company Standards resource center http://www.aicpa.org/privateGAAP FASB offers webcast: FASB Update for NonPublic Entities (Private Companies) Our view is that we applaud the efforts of FASB to focus on needs of private companies and that there was a formal structure with the PCFRC that was ignored. It is time to give this new approach a chance with a re-visit in five (5) years.
- 24. Conclusion On June 2, 2011 the MACPA Board of Directors unanimously adopted the report & recommendations of our Accounting Standards Task Force, urging FAF to move forward with the separate Private Company Standards Board and the recommendations in their Blue Ribbon Panel report. MACPA Announcement http://www.macpa.org/Content/26146.aspx MACPA whitepaper can be viewed & downloaded here: http://www.slideshare.net/thoodcpa/macpa-private-company-standards-whitepaper
- 25. Next Steps Distribution and communication Education & awareness of our members and the small business community Make our voices heard at the FAF
- 26. Skip Falatko, CPA Director of Finance Maryland Association of CPAs Business Learning Institute (443) 632-2322 E-mail skip@macpa.org Web http://www.macpa.org Blogs http://www.cpasuccess.com http://www,bizlearningblog.com
- 27. Tom Hood, CPA.CITP CEO Maryland Association of CPAs Follow me on: Twitter: http://www.Twitter.com/tomhood LinkedIn: http://www.linkedin.com/in/tomhood Facebook: http://www.facebook.com/thoodcpa Plaxo: http://tomhood.myplaxo.com Slideshare: http://www.slideshare.net/thoodcpa Youtube: http://www.youtube.com/thoodcpa Second Life avatar name: Rocky Maddaloni Check our Customized Training Catalog out: http://www.bizlearning.net
Editor's Notes
- The current U.S. financial regulatory system has relied on a fragmented and complex arrangement of federal and state regulators—put into place over the past 150 years—that has not kept pace with major developments in financial markets and products in recent decades. As the nation finds itself in the midst of one of the worst financial crises ever, the regulatory system increasingly appears to be ill-suited to meet the nation’s needs in the 21st century. Today, responsibilities for overseeing the financial services industry are shared among almost a dozen federal banking, securities, futures, and other regulatory agencies, numerous self-regulatory organizations, and hundreds of state financial regulatory agencies. Much of this structure has developed as the result of statutory and regulatory changes that were often implemented in response to financial crises or significant developments in the financial services sector. For example, the Federal Reserve System was created in 1913 in response to financial panics and instability around the turn of the century, and much of the remaining structure for bank and securities regulation was created as the result of the Great Depression turmoil of the 1920s and 1930s.
- Let me set the stage for you. This is an issue that impacts vast reaches of the U.S. economy. Only about 15,000 companies are registered with the Securities and Exchange Commission, but there are 28.5 million private businesses, according to the U.S. Census Bureau (this number excludes non-profits which would not be covered by current proposed changes in private company reporting). Yet U.S. GAAP is driven by issues that occur in the capital markets to address the needs of public companies and their stockholders. So, standards developed for 15,000 companies have to be applied to many of the nation’s 28.5 million private businesses that prepare U.S. GAAP financial statements. In recent years, accounting and reporting guidelines too often have lacked relevance and have become unnecessarily complex. The result is that too much of what’s included in current financial statements is not useful to private company owners, lenders or investors. Anything that hinders small businesses has a profound impact on the U.S. economy. According to the U.S. Small Business Administration, small businesses employ more than half of all private sector workers in the United States and are responsible for 44% of the private payroll. They have generated 64% of the new jobs created during the past 15 years. Many of these companies are small and medium-sized organizations that report to a narrow range of financial statement users, such as lenders, venture capitalists and insurers.
- In 2004, the AICPA undertook a research effort to definitively assess what constituents thought about the problem after hearing concerns from CPAs and others for decades. The AICPA’s Special Task Force on Private Company Financial Reporting (also known as the “Castellano Task Force”), after getting responses from more than 3,700 lenders, investors, business owners, financial managers and public accounting practitioners, found that too many GAAP-specific requirements are not useful or relevant to private company constituents. A majority of each group who had an opinion believed it would be useful if underlying accounting in GAAP reporting were, in certain instances, different for non-public companies. The task force published its report in early 2005, underscoring the need and urgency to address private company reporting. Two examples cited as offering many private company financial statement users little benefit while costly to implement are: the interpretation formerly known as FIN 48, on uncertainty in income taxes, and FIN 46R, related to consolidation of variable interest entities. Many private company constituents say both are causing unnecessary challenges for private companies and demonstrate why private companies are spending quite a bit of their time and money complying with accounting standards that relate to information that may never actually be used by anyone reading their financial reports.
- What was the U.S. response? In 2010, the AICPA, the Financial Accounting Foundation and the National Association of State Boards of Accountancy formed the Blue Ribbon Panel on Private Company Financial Reporting. (FAF oversees the Financial Accounting Standards Board and the Governmental Accounting Standards Board.)The panel’s mission was different from those of prior committees or groups created to study the issue because it looked at the standard-setting process from a policy level, rather than at specific changes to individual standards. This was a significant departure from the past. It was about exploring whether and how there should be a standard-setting process that recognizes there are differences between public and private companies.The panel chair was Rick Anderson, CPA, CEO of Moss Adams LLP and a former member of the FAF Board of Trustees. The other 17 members represented a top level cross-section of financial reporting constituencies, including lenders, investors, owners, preparers and auditors. AICPA President and CEO Barry C. Melancon, CPA, served on the panel. Five meetings were held in 2010 and the panel completed its report with recommendations for change in January 2011. The report was given to FAF at that time.
- The report had other recommendations as well: To determine when there should be differences for private companies in the standards, the panel recommended that a framework with decision criteria be developed against which standards would be compared. It also outlined a process for exposure of proposed standards. Another recommendation is that the new standard-setting structure and process be reviewed after 3 to 5 years to determine if it is working as effectively and efficiently as it should. The FAF would at that point determine if the changes are performing as intended, and whether additional structural modifications are necessary.The number of board members of the new board was proposed for between 5 and 7.The panel’s staff estimated the cost of the new board at approximately $4-5 million annually and suggested ways of funding it.
- In 2004, the AICPA undertook a research effort to definitively assess what constituents thought about the problem after hearing concerns from CPAs and others for decades. The AICPA’s Special Task Force on Private Company Financial Reporting (also known as the “Castellano Task Force”), after getting responses from more than 3,700 lenders, investors, business owners, financial managers and public accounting practitioners, found that too many GAAP-specific requirements are not useful or relevant to private company constituents. A majority of each group who had an opinion believed it would be useful if underlying accounting in GAAP reporting were, in certain instances, different for non-public companies. The task force published its report in early 2005, underscoring the need and urgency to address private company reporting. Two examples cited as offering many private company financial statement users little benefit while costly to implement are: the interpretation formerly known as FIN 48, on uncertainty in income taxes, and FIN 46R, related to consolidation of variable interest entities. Many private company constituents say both are causing unnecessary challenges for private companies and demonstrate why private companies are spending quite a bit of their time and money complying with accounting standards that relate to information that may never actually be used by anyone reading their financial reports.