Accounting for Public Companies

The drive to create a unified world-wide system for corporate accounting has stalled, perhaps permanently.

In March, 2009, my article in New England In-House noted the SECs then-proposed road map leading to mandatory adoption of International Financial Reporting Standards (“IFRS”) for all reporting United States issuers (’34 Act public companies).  At the time, there was talk of a several year timetable, and resolution of what was then perceived to be the knotty questions: would IFRS integrate with the SECs mandated XBRL language (requiring financial statements to format  consistently so that computerized comparisons could be achieved); resolving the tension created by United States regulatory  requirements for “GAAP” accounting; how to deal with LIFO accounting, which was not  permitted under IFRS; resolving differences in accounting for P&L, recognition of litigation liability, and the equity method of valuing investments.

Where are we today?  Bogged down.

Neither the United States Financial Accounting Standards Board (“FASB”) nor the board administering the international standards (“IASB”) is making much headway, nor are they talking about a program to resolve all inconsistencies between the systems.  IASB has stated that seeking “convergence” with US GAAP is no longer a priority.  Rather, the two organizations presently seem focused on resolving specific differences concerning income recognition, and  accounting for financial instruments and leaseholds; a joint standard on revenue recognition may well issue, according to Compliance Week, in early 2013.

In the meantime:

* FASB is moving forward at its own deliberate pace in an effort to address, without adopting international standards, some of the basic issues presented by the emerging world economy.

*The Committee of Sponsoring Organizations (“COSO”) has published an update to its long standing “framework” which establishes the methodology for companies creating internal controls over their financial reporting.  You may recall that the original COSO framework was in existence at the times Sarbanes-Oxley was adopted in 2002, SOX required reporting on the efficacy of internal financial controls by SEC-registered companies, and use of the COSO framework became normative.  The old COSO framework was a decade old at that time and is now, of course, 20 years old.  The revised COSO version is directed at solving issues that were difficult to resolve under the old framework, and is replete with illustrative tools to facilitate compliance.

*The Public Company Accounting Oversight Board (“PCAOB”), which controls the auditing of SEC registered companies, has announced that PCAOB and Chinese authorities will begin observing the audit oversight activities of each other, better to understand quality control; granular reviews of specific audits are not presently contemplated.  As more and more companies from China are coming onshore into the United States, some by generally disfavored “reverse mergers” into shells that are already publicly held, getting a better understanding of the accounting history of Chinese companies makes a lot of sense.

And as for convergence of GAAP and IFRS?  It always struck me that the commentators and magazine writers were more excited by the prospect of accounting convergence than were CFOs and CPAs.  In any event, at least for now American standards for accounting seem to be intact and without immediate prospect of substantial revision.

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