Boosting IFRS Education; Guidance Galore

The Big 4 accounting firms are lending their global expertise to universities to improve accounting education on International Financial Reporting Standards, just as the profession plans to update its standards for passing the Certified Public Accountant exam.

Deloitte & Touche said last week it is forming an International Financial Reporting Standards University Consortium, through which it will contribute time, experience and resources to help infuse IFRS curricula into college classrooms. Deloitte is working first with Ohio State University and Virginia Tech University to draft course materials and to provide Deloitte professionals as lecturers. The materials will be offered to other interested universities as well.

Ernst & Young has also established its Academic Resource Center, a collaboration between E&Y professionals and university faculty to develop IFRS curricula that will help accounting students learn global accounting requirements. The program is getting off the ground with a $1 million investment from E&Y's foundation, which will be used to develop teaching materials, host conferences, and provide on-campus speakers, among other activities. It will launch in September and begin distributing curricula materials in January.

Meanwhile, the American Institute of Certified Public accountants is looking for comment on a proposal to change the CPA licensing exam to include content on IFRS. The proposal says that if IFRS becomes accepted in the United States (as it is expected to be), it would become eligible for expanded testing in the exam. The AICPA also has amended its rules to designate the International Accounting Standards Board, which oversees IFRS, as a recognized body setting accounting standards that AICPA members may follow. The AICPA has also launched a Website specifically dedicated to IFRS.

Gannon

“We all have an interest in making sure what comes out of university systems result in accountants who are good and have the right skill sets,” says D.J. Gannon, leader of Deloitte’s IFRS Center of Excellence in the United States. “For IFRS, the skill sets are changing.”

While U.S. Generally Accepted Accounting Principles are known for voluminous rules and bright lines, IFRS is a more principles-based system requiring more use of judgment. That changes the way students need to be educated, he says.

“Accounting education has been focused primarily on teaching accountants and students how to research and find standards to answer questions,” Gannon says. “IFRS is a lot less focused on research. You don’t have to go through volumes to get the right answers. It’s much more of a thinking exercise. We have to make sure those types of messages flow through the universities.”

E&Y believes students entering college classrooms this fall will likely need to understand new financial reporting standards when they enter the workforce in 2012. The Securities and Exchange Commission hasn’t yet set a firm date, but all signs are that sometime soon it will begin letting U.S. companies file financial statements in IFRS rather than U.S. Generally Accepted Accounting Principles. International filers using IFRS already have permission to start financial statements without reconciling those numbers to GAAP.

The remaining Big 4 firms say they also are working on IFRS education initiatives as well. All four firms are focused not only on university-level curricula but on training their own professionals as well.

Randy Fletchall, chairman of the AICPA, said in a statement that use of IFRS in the United States is inevitable. “It is a question of how soon, and whether there will be an option to early adopt IFRS prior to a date when required,” he said. “All participants in the financial reporting system need to focus on our preparedness for making a successful conversion from U.S. GAAP to IFRS.”

FASB Plans Webcast on Credit Crisis

As turmoil and liquidity problems persist in the capital markets and as blame increasingly focuses on new fair-value accounting rules, the Financial Accounting Standards Board is hosting a Webcast to discuss the current crisis.

The panel will include FASB Chairman Robert Herz, along with Matt Schroeder, global head of accounting policy at Goldman Sachs; Raymond Beier, a partner at PricewaterhouseCoopers; and Jack Ciesielski, publisher of The Analyst’s Accounting Observer.

Ciesielski

FASB is hosting the Webcast free of charge on Monday, June 2. Registration is required.

FASB did not specify the extent to which the panel will debate causes for the current crisis or simply defend FASB’s rules on the use and measurement of fair value. The panel is decidedly weighted toward proponents of using fair value in financial statements compared with historical cost.

FASB has been shifting accounting rules toward increasing use of fair value, but its latest move to establish a common definition and framework for measuring fair value is drawing heavy criticism as the credit crisis lingers. Although Financial Accounting Standard No. 157, Fair Value Measurement, requires no new use of fair value, opponents say its rules on how to measure fair value contribute to the downward spiral in valuation and liquidity.

Auditing Advisory Panel Seeks Comment

IThe Treasury Department’s Advisory Committee on the Auditing Profession wants comment on its draft of recommendations for how to prop up the auditing profession.

The committee published a draft report in early May to begin fleshing out early feedback, according to co-chair Donald Nicolaisen. Now the committee is asking for written comments on the draft (which is still incomplete) through June 13.

The draft report offers ideas on how talent should be recruited into the auditing profession; how young auditors should be educated and trained; how firms should strengthen their ability to detect and prevent fraud; and how firms should make investors aware of auditors’ duties in that area. The draft also offers ideas for how firms that run into litigation or other legal trouble should be managed to avoid any further erosion of top-tier firms. The report does not call for outright liability protections or other kinds of indemnification.

The committee continues working on issues such as partner rotation, retention, compensation, workload compression, teaching accounting at the high school level, visas, outside capital and the firm business model, litigation, transparency, engagement partner signatures, and expansion of the auditor’s report.

PCAOB Plans Roundtable on Overseas Audit Regulators

The Public Company Accounting Oversight Board is hosting a roundtable discussion June 25 to get input on its plan for relying on overseas audit regulators to help fulfill Sarbanes-Oxley inspection requirements.

The Board issued its proposal, “Guidance Regarding Implementation of PCAOB Rule 4012,” in December and accepted written comments through early March. The policy statement outlines the criteria the PCAOB would establish for reliance on other regulators to complete inspections as required by Sarbanes-Oxley. That would include inspections of non-U.S. audit firms that are registered with the PCAOB to audit U.S. public-entity financial statements.

The PCAOB has relied to some extent on audit oversight bodies in a number of countries, while it established itself and developed staffing and processes to meet the Sarbanes-Oxley inspection requirement. The Board said audit oversight in many of those countries has advanced to a level sufficient to allow some U.S. reliance, leading to the proposal.

AICPA Publishes Practice Aids on Controls

The American Institute of Certified Public Accountants has issued a new series of technical practice aids covering a variety of questions and answers on internal control over financial reporting.

The AICPA practice aids cover ineffective controls, use of walkthroughs, documenting internal control, suggesting improvements in internal control, identifying significant deficiencies, examining journal entries, and defaulting to maximum control risk. The material is a compilation of “frequently asked questions” posed to AICPA staff.

Hiram Hasty, AICPA technical manager, says internal control is always a popular topic. “The new risk assessment standards, among other things, fundamentally change the auditor’s responsibilities in the area of internal control,” he says.

As an example, under old standards, auditors were not required to document the basis for their conclusions on whether or not to test internal controls—commonly referred to as defaulting to maximum control risk. With the new risk assessment standards, however, auditors are required to obtain a sufficient understanding of internal control in all audits to assess the risks of material misstatement, Hasty says.