What's the Password? Five Possible Answers for Accounting Regulators

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Read more from Edith Orenstein here and in the FEI archive.
 
A version of this article originally appeared at FEI's Financial Reporting Blog.
 
Password was a popular TV show back in the day, in which TV personalities teamed up with regular Joes and competed for prizes based on giving one-word “passwords” to their teammates to guess the “Password” that only the studio audience and TV viewers saw.
 
In this post, we attempt to identify, by use of only one word, that thing by which we believe each of the five standard-setters and regulators (and in one case, a quasi-standard-setter or de facto regulator, specifically, COSO) is likely to be most associated with in 2014. 
 
As is the case in general for the FEI Financial Reporting and in particular when I identify material as “my two cents” - and I would classify this entire post as “my five cents” - please note the disclaimer which appears on the right side of the FEI blog.
 
Here's a summary of the five passwords: 
 
1. FASB: Private
2. IASB: Next
3. SEC: Enforcement
4. PCAOB: New
5. COSO: Now
 
How would you describe, if you could only use one word, what the most important impact or initiative of each of the five organizations/regulators will be in 2014? Tell us below!
 
1. FASB: Private
FASB has built the foundation (and the first few floors!) of its increasing emphasis on private company financial reporting. This entails a serious focus on the practical, real-world needs of a majority of users of private company financial reporting, which could potentially differ from previous versions of generic “users” or even generic technical/expert “users” of financial reporting, such as FASB’s previous Investors Technical Advisory Committee (ITAC) which was, in substance and form, significantly influenced by public company analysts. 
 
The “foundation” was laid on December 23, 2013, with the release of FASB's Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies
 
The “layers” include several private company accounting standard updates recommended by the Financial Accounting Foundation (FAF) Private Company Council and endorsed by FASB, including ASU No. 2013-12, ASU 2013-09, and ASU 2013-03
 
The work begun by FASB on simplifying GAAP for private companies could have a positive spillover effect on simplifying or making GAAP less complex for public companies, as well, in my view.
 
2. IASB: Next 
As the IASB and FASB complete the last of the major projects under their 2002 bilateral Memorandum of Understanding (MOU), both boards move to an increasingly multilateral model. 
 
Significantly, however, some may view the underlying tone of the two multilateral models as differing in subtle or not-so-subtle ways. IFRS Foundation Chairman Michel Prada described the IFRS Foundation's model as an “inclusive” multilateral model in his remarks in October 2013 in Germany, while FASB Chairman Russell Golden first spoke of FASB’s vision for a “decentralized, multilateral model” supporting “convergence” toward a set of “common, converged global standards” at a meeting of FEI’s Japan Chapter and Keidanren, the Japanese Business Federation, later in the very same week that Prada spoke in Germany. 
 
FASB’s Golden was quite clear in his remarks in the “FASB@40” conference in September 2013 that:
"In all instances, the FASB's objective will be to promote the improvement and convergence of U.S. GAAP and IFRS."

Further establishing itself as an independent, adequately funded organization will be a key ongoing strategic goal of the IFRS Foundation and the IASB. 
 
Christopher Westfall, editor-in-chief of Financial Executive magazine, captured highlights of the two chairman's remarks in his cover story, Convergence 2014. The article includes other important highlights from the CFRI conference.
 
Up next: SEC, PCAOB, and COSO
 
3. SEC: Enforcement
If I had a crystal ball, I’d say it’s likely we’ll see some major action on the enforcement front to demonstrate the strategy behind the high-level initiatives led by Chairman Mary Jo White and Enforcement Director Andrew Ceresney, as noted last year in our posts: No-Admit, No-Deny: SEC Policy Evolution, Not Revolution (citing White), and SEC Forms a FRAT! (citing Ceresney on SEC’s new Financial Reporting and Audit Task Force). [NOTE: Ceresney is now the sole director in the Division of Enforcement, as his former co-director, George Canellos, recently announced he will leave the SEC later this month.] 
 
Chairman White outlined further what would happen in a world in which fewer cases would be resolved under no admit, no deny settlements, in her speech on November 14, 2013, entitled, "The Importance of Trials to the Law and Public Accountability."
 
Drilling down to the Office of the Chief Accountant (OCA), Brian Croteau, deputy chief accountant with responsibility for professional practice (auditing standards, professional practice, internal control over financial reporting, and related matters), spoke of the OCA's liaison role with the Division of Enforcement in his remarks at the December 2013 AICPA National Conference on Current SEC and PCAOB Developments. I strongly recommend that readers review the enforcement subsection (and other sections of interest) in Croteau’s remarks at the AICPA conference. 
 
4. PCAOB: New
In 2013, although not proposing mandatory audit firm rotation (which Congress prohibited the PCAOB from doing - although the Senate did not take any vote on the matter), the PCAOB proposed a rule that would require disclosure of the term of the audit firm, as part of its proposal to change the auditor’s reporting model. 
 
Although the usefulness and proper “geography” of any such disclosure of the term of the audit firm were debated (e.g., if useful, should such disclosure really be in the auditor’s report, the audit committee’s report, or the proxy statement?), these issues paled in comparison, in my view, with larger issues contained in this particular proposal, including a requirement that auditors disclose and discuss critical audit matters (CAMs), and that auditors up the ante, terminology-wise, at least (but inquiring minds want to know: will this change in language drive behaviors that will up the time spent, audit fees relative to, auditors' level of responsibility for, and investors’ reliance upon the underlying information?) due to the fact that auditors would be required to “read and evaluate”, not just “read and consider”, other information contained in a report containing the audited financial statements and auditor’s report thereon. 
 
5. COSO: Now
COSO released its updated Internal Control-Integrated Framework, a twenty-year update to its landmark 1992 internal control framework, in May 2013. 
 
As announced by COSO at that time, the COSO 2013 framework will be deemed to supercede the 1992 framework as of December 15, 2013. Thus, the time to implement what many people informally refer to as “COSO: 2013” is NOW. 
 
SEC Chief Accountant Paul Beswick subsequently commented on COSO adoption, as noted in Control Yourself !! SEC Staff on COSO; Learn More. Beswick reiterated his remarks at FEI’s Current Financial Reporting Issues Conference (CFRI) in November 2013. 
 
Further details on these “Passwords” and related information can be found in Five for 2014

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