During MFA’s annual Education Week this summer, we were lucky enough to get some time with Barry Melancon, President and CEO of the AICPA. Barry shared a fascinating perspective that helped to draw the line between a high level, overarching outlook and the client work we conduct on a daily basis. It was interesting to see that the discussion centered around issues that we often touch upon here in MFA’s Business Insights.
Much of the bird’s eye view centered around the nature of small and mid-sized enterprises and their role in the U.S. We’ve seen a great many changes in the small business landscape, and Mr. Melancon was adamant that the focus on this segment continue to get stronger. He noted that “In our society, small business is really the engine. It makes up about 50% of our pre-recessionary GDP. There are about 24 million private businesses (including work-at-home businesses), and about 16-17 thousand public companies. It’s a huge part of our economy.”
Small businesses often fall out of the spotlight and struggle to have their viewpoints heard over the louder voices of large organizations. Certainly in this economic climate, the challenges encountered by small business owners run a wide berth, but our focus on reporting and compliance gives us a window into the difficulties of complying with regulations that aren’t necessarily written for that audience. We’ve touched on this before in posts on XBRL, the FASB codification, Massachusetts privacy laws, and International Financial Reporting Standards (IFRS).
The slow momentum towards IFRS was of key importance to Mr. Melancon. He noted that:
There is a lot of concern around the country about the complexity of accounting standards for private companies, especially FIN48 and FIN46R…We believe it points to a problem that we have an increasing number of private company statements that are not complying with GAAP. Doesn’t that start to conflict with the concept of generally accepted accounting principles? Is that what we want, or should we have standards that are more tailored to private companies?
There is a likelihood that we’ll see some process that will create a different set of accounting standards. IFRS gives us an opportunity to look at this…Just last week the International Accounting Standards Board issued IFRS for SMEs, and maybe that’s the answer for private companies. Or we have to look at several other options to begin to have a process where appropriate standards are in place for private companies. There are many different approaches, and this will be a critical issue to work out over the next 18-24 months.
Mr. Melancon also had some great clarifying comments about the ongoing Fair Value debate that centers on whether Fair Value should be adjusted to help correct plummeting company values. We’ve written both on the conflict and on the opportunity provided by the situation, and Mr. Melancon added some texture to the conversation when he said that:
Fair value accounting reports on what has happened but the underlying business decisions are what caused many of the issues we’ve experienced. But FASB has still come under tremendous pressure to modify Fair Value in order to not exacerbate the situation. They did modify the rules to some degree, although there’s still lobbying in Congress for FASB to go further. This lobbying in Congress brought into question whether the government should set accounting standards; we believe completely in the independence of the standard setting process.
Such wide-ranging discussion was invigorating, especially as we work earnestly towards the light at the end of this recessionary tunnel. It is clear that there will be significant changes in a number of areas, even if the tides take some time to rise. We believe that out of difficult times will come a stronger, more flexible system that will benefit U.S. businesses and enable us as a country to innovate our way back to a position of leadership.