History is altering the course of accounting
By Bob Prator

The recession has caused a number of noteworthy shifts in the world of accounting. As the premier professional organization for CPAs in the state Georgia, the Georgia Society of Certified Public Accountants (GSCPA) sees accountants facing three broad trends in accounting: a dynamic marketplace of increasing completion, downsized CPA firms and accounting departments, increasing workloads, more outsourcing and rapidly changing uses of technology; secondly, more federal regulation, which increases complexity in tax law and accounting standards; lastly rapid globalization.

Businesses need CPAs more than ever but are less able to pay for the services. Extensive pressure exits to cut fees as a result of accounting department budgets being slashed. The consequence is more work for fewer people, creating opportunities for outsource service providers and new technology applications that allow CPA firms and businesses to achieve lower costs. The recession has caused a shift in the top issues for CPAs in public practice. Staffing has been dominant concern for many firms over the last decade but, for the first time in several years, the ability to hire and retain accounting personnel is not the No. 1 issue in the American Institute of Certified Public Accountants (AICPA) biannual survey of accounting firms that serve private companies. Client retention and practice growth, two challenges that did not appear as top issues in the 2007 survey, topped the list of 2009.

The success of efforts to increase the supply of accounting graduates in response to the industry's need for staff reached a peak in the 2007-08 academic year. More than 66,000 students graduated with bachelor's and master's degrees in accounting. This batch of students was the largest number of graduates since the AICPA began tracking the data in 1972. Ironically, the hiring of new graduates has declined overall as a result of the weakened economy. On the regulatory front, the financial crisis and President Barack Obama's quest for change have produced numerous new federal regulatory actions and proposals that affect accountants.

The administration has presented a plan for regulatory reforms that would consolidate banking regulators, create new government agencies and give new powers to the Federal Reserve. One proposal of particular interest to the accounting profession includes specific recommendations to accounting standards setters concerning changes to accounting standards. This plan could be a step toward government involvement in standards setting. The House Financial Services Committee is considering legislation to establish the Consumer Financial Protection Agency. Also, tow representatives on the Financial Services Committee have proposed a federal accounting oversight board.

All of this activity has kept the AICPA and the GSCPA busy advocating for retaining the accounting standards setting process in the private sector and for careful, thoughtful reform of the regulatory process. The world seems to be shrinking; global accounting issues seem to be growing. While most agree that a single set of high-quality, globally accepted standards for public company financial reporting is essential, there are differing views about how to achieve it. International Financial Reporting Standards (IFRS), a set of accounting standards developed by the International Accounting Standards Board (IASB), is becoming the global standard for the preparation of public company financial statements. The IASB is an independent accounting standards body based in London. The Securities and Exchange Commission embraces the concept but has not set a date for the complete transition to IFRS for U.S. public company financial reporting. Currently, public companies in the U.S. can report using either IFRS or Generally Accepted Accounting Principles in the United States (U.S. GAAP) established by the Financial Accounting Standards Board (FASB), an independent standard-setting organization. Significant ongoing efforts exist to converge the two sets of standards through a process of adopting changes to each until most of the differences are removed. FASB Chairman Robert Herz has said that a lack of complete convergence should not stop the U.S. from adopting international accounting standards in the next three to five years.

The SEC seems to have lost some of its enthusiasm for setting a date for full conversion to IFRS, perhaps because of the distraction of the current financial crisis and voices in Congress advocating for the convergence process. Until a certain date is set public, companies will be reluctant to invest the time and money that will be required to get ready for the switch to IFRS.

With the recent issuance of IFRS for Small and Medium Enterprises (IFRS for SMEs), U.S. private companies now have an additional option that some may see as providing the long-sought relief from large company requirements embedded in U.S. GAAP. Private companies, unlike public companies, are not required to use a particular basis of accounting when preparing their financial statements. The factors that drive a private company's choice of which financial accounting and reporting framework to follow depends on the company's objectives and the needs of their financial statement users. Private companies in the United States can prepare their financial statements in accordance with U.S. GAAP; another comprehensive basis of accounting such as cash or tax basis; or with IFRS. Compared with U.S. GAAP, which is very rules-based, IFRS is principles-based. Consequently, different accountants can come to slightly different answers regarding similar circumstances. This differential will present some interesting challenges as U.S. companies adopt IFRS. Regulators and financial statement users will need to have a tolerance for that and support professional decisions.