AICPA National Conference on Current SEC & PCAOB Developments
The AICPA’s new Chair, Leslie Murphy, opened the conference. Murphy said, “Reliable and transparent financial reporting is fundamental to the well-being of our capital markets. The regulators and standard setters with whom we have collaborated to bring you this conference play a vital role in setting the bar for quality business reporting.” She continued, “Now, more than ever, CPAs and the regulatory community must work together. The richest solutions to issues are those that we will craft together.”
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Murphy highlighted the use of technology in describing how the CPA profession and regulatory bodies are collaborating to improve the flow and presentation of financial information for investors. She spoke of how eXtensible Business Reporting Language (XBRL) originated with the AICPA. XBRL is a specification for electronic transfer of financial information. The use of XBRL is currently being encouraged by the SEC via a voluntary filing program that started in April.
“XBRL can help make investors better informed, Murphy said. “The question you should be asking is, why would my company not support making investors better informed? Next year, we should be reporting that hundreds of companies are filing using XBRL.” Murphy continued, “And XBRL is a truly global phenomenon, with progress establishing XBRL-formatted filing in places like Germany, Spain, Netherlands, China and Japan.”
Compliance with Section 404 of the Sarbanes-Oxley Act (SOX) is a requirement starting with all public companies with fiscal years ending this month and all other companies next year. Murphy and several other speakers voiced the marked increase in costs cited by companies complying with this SOX requirement for the first time. Section 404 governs the reporting and verification of a company’s internal financial controls by auditors. Although initial compliance costs have been high and experienced staff may be lacking, Murphy, and other SEC and PCAOB speakers see these situations alleviated as more and more companies “assemble all the necessary documentation and … refine their internal control systems,” as Murphy said in her opening remarks.
Murphy said, “I think it is clear that — as challenging as it has been to implement — SOX 404, overall, has had a positive impact on financial reporting and on the capital markets in general.”
Under the guidance of accounting standard setters, “Practitioners are navigating changing waters. To help them, over the past few years our volunteer members and staff have produced significant guidance and a number of practical tools — including the first codification of PCAOB standards,” as Murphy said in her opening remarks.
PCAOB member Charles Niemeier spoke on Monday about accounting being a form of communication and asked what quality is added to accounting by our current standards. He spoke about the “talent pipeline” and the need for qualified accountants, especially in the current accounting environment. The need for research in this environment was expressed also.
Chief Auditor and Director of Professional Standards Douglas Carmichael spoke on Monday about his desire for academic research to be rolled into the standard setting process and “research synthesis.” He said that the inspection process was the “heart of the PCAOB” also. He spoke at length about “likelihoods” indicating the “presence of fraud.”
FASB Chairman Robert Herz stated, during his speech on Tuesday morning before the audience of some 1,500 auditors, corporate controllers, and chief financial officers, that the initial codification is not expected before late 2007 or 2008. He also spoke about principle-based accounting standards that reduces complexity while improving transparency for investors. He said accounting standards should ideally avoid “form over substance” or “black box” perspectives.
FASB Vice Chairman Mike Crooch pronounced the codification of PCAOB standards one of the most important projects currently in the regulatory environment. He also spoke on Tuesday on the current FASB pension accounting project, business combinations, the current confusion with liabilities and equities, the differentiation between “single” and “complex” equities, and liability extinguishment.
The AICPA is the national, professional association made up of some 350,000 member CPAs in business and industry, public practice, government, and education with student affiliates and international associates. The AICPA sets ethical standards for the accounting profession as well as auditing standards for audits of private companies; federal, state, and local governments; and non-profit organizations in the U.S. The AICPA also develops and grades the Uniform CPA Examination. More information on the AICPA is available at their web site at www.aicpa.org.