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Wednesday, June 13, 2012

Standards Fatigue Seems to Be Setting in Among Accounting Professionals, But They Shouldn’t Expect Much Relief

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 The intensity of effort by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board to converge their standards—especially since pledging to complete their top four priority projects in 2013—has left exhaustion in its wake. “First of all, everybody [wants to see] a period of calm,” IASB Chairman Hans Hoogervorst said at a recent roundtable on his interpretation of the feedback the board has received on its future priorities. “People need to recover from all the changes, which have caused preparers a tremendous amount of work.”

IASB Vice-Chairman Ian Mackintosh acknowledged at a recent American Institute of Certified Public Accountants conference that same desire for respite. But he had some bad news for FASB and IASB constituents. “It’s not going to be very calm for the next four or five years,” Mackintosh said, despite the pleas for a chance to “let things settle down” after the flurry of proposals and standards that are expected to be issued over the next few months.

For one thing, the standards setters might be about to embark on an unprecedented wave of jurisdictional and structural reform. Securities and Exchange Commissioner Elise Walter said May 22 she expects the SEC staff to present to the commission in a “matter of weeks” its final work plan on whether and how to adopt international financial reporting standards for use by U.S. companies domestically. That could touch off three-four years of deliberations over the authority and role of FASB within the international standards setting framework, saddling FASB and IASB constituents with considerable effort to scrutinize and influence the course of that evolution. Walter said that it is “critical” that any decision to allow the use of IFRS domestically in the United States must include “a robust due process” by IASB to “appropriately consider the U.S. perspective” in setting IFRS.

For another, FASB’s parent, the Financial Accounting Foundation, voted May 23 to create a new body to partially wrest from FASB the responsibility for setting accounting standards for private entities—the Private Company Council. While a FASB member would not be either the chairman of the private council or even a member of it as FAF originally envisioned, FASB still must endorse any changes in generally accepted accounting principles that PCC recommends. FAF hopes to get PCC members chosen, vetted and installed in time for a meeting by the end of 2012, but establishing the interplay between FASB and the PCC could yet prove to be a long-term project.

FASB and IASB still face considerable hurdles in meeting their 2013 self-imposed deadline for converging their top four projects—financial instruments, insurance, leasing and revenue recognition. This might be especially true for leasing, where they are trying to figure out how to bring most leases onto corporate balance sheets. The idea of creating one leasing model might be out of reach, leaving them with the choice of adopting a right-of-use lease that would require concentration of the lease depreciation in its early years, or one in which the depreciation is spread more evenly over the life of the lease. How and whether to blend these two has proved problematical, and there is no clear agreement on what approach best represents the economics of a leasing transaction. The boards also have approached the idea of accounting for insurance contracts from different perspectives.

All these flurry of changes will also bring increased need for disclosures by companies about how they arrived at their accounting conclusions at a time when many preparers already are complaining of disclosure overload. The growing disclosure burden is another reason the pace and intensity of standards setting might not abate over the next five years.

If anything, incline of the standards-setting treadmill could steepen rather than flatten.

By Steven Marcy, Staff Editor, Bloomberg BNA Tax Management
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