By Jo Ann Golden

A movement is afoot in certain states proposing to create new accounting rules for entities not regulated by the Securities and Exchange Commission. GAAP (Generally Accepted Accounting Principles), as we now know it, would solely be for SEC registrants. This raises, once again, the concept of “BIG” vs. “little” GAAP. This certainly is a most inopportune time to promote this controversial idea, as it can only further divide a profession that is already moving dangerously close toward division within its ranks. The events of the past year and a half have laid a foundation upon which blame and cynicism from both within and outside the profession have been built. We should, instead, use the foundation to rebuild a stronger and unified profession.

There is a danger in allowing one set of accounting rules for “littles” and another set of rules for “BIGS.” Certainly, we can understand that the massive requirements expected to be placed upon SEC registrants could overburden nonpublic businesses. However, the public confusion that would arise over materially different rules between financial statement reporting for nonpublic companies and for public companies would, in the long run, compromise the best interests of those companies and our role as CPAs. This is not to say that public companies and non-public companies should be dealt with identically in all respects. Clearly, there are certain events that trigger when a company is required to report and comply with SEC rules. But those rules already address more than just financial statement reporting.

Consistency in communicating financial information has been one of the strengths of GAAP. A user of financial information can easily understand what he or she is reviewing because the rules for reporting are essentially the same for all entities. To allow an inconsistent approach could confuse or mislead a user. And even in nonpublic companies, there are those who must be protected: the minority shareholder, or the active owner who relies on the services of an employee bookkeeper. Permitting two sets of rules would be akin to creating the Accounting Tower of Babel—one language for one type of business and a different language for another.

Further complications come from a public that is confused about our many roles. On the one hand, some of us work within companies as reporters of financial information, while others work outside companies to provide assurance to users that the information is fairly stated. What a tremendous task it would be to convince users of our services that their expectations must be different for those who work in or with public companies and those who work with nonpublic companies. How would we handle companies that receive public funding or contracts? What about public government and private partnerships? How would we provide assurance that all these “publics” are protected?

Rather, we should look to events or financial thresholds that would trigger certain reporting. In many instances, the market has driven that idea. In New York state, for instance, a not-for-profit registered with the State Charities Bureau must have an audit of its financial statement if its annual revenues exceed $250,000 (up from $100,000). Why should the public investing in a particular charity have a different expectation of the disclosure of information by the charity? And why should the purpose of an audit be different for the charity?

We should strive for clarity in presentation and disclosure. In order to do so, we must endeavor to understand and adhere to a set of standards that must be consistent for all. The Uniform Accounting Examination came about because of just those kinds of issues. No one said this is an easy job. But a lot of businesses are depending upon all of us.

Tragically, an undercurrent of BIG vs. little blame has emerged from the accounting failures of the past year. At a time when we should pull together as a unified profession and look for common solutions, controversial movements such as this move us farther apart. Instead of moving together, we find ourselves working at cross-purposes, each looking for the best rules to govern “our” practices with little regard for the other. My fear is that, if promulgated, a split in rules would make the profession appear weak and self-serving—not an image we wish to portray to the public in these troubled financial times. In the end, our clients and the public would be the losers.

The membership of the New York State Society of CPAs is uniquely poised to offer a rational solution to reform the accounting profession for all CPAs in our state. The Society has worked diligently over the year to update our current legislative agenda, responsive to what it perceives as the needs of both the users, our clients, and the providers, New York state CPAs—both BIG and little. The Society’s proposed legislation provides the means to ensure that the public is protected without stifling accounting practice in New York state.

As CPAs, we naturally are concerned about the effects of individual states’ applying variations of Sarbanes-Oxley Act provisions to nonpublic companies. However, avoiding change and new rules is not the way to proceed. We must work with legislators and regulators to develop an approach that is rational and reasonable for the general public. And we must pre-sent ourselves as a strong and unified profession. We have a lot of hard work ahead of us.

president@nysspca.org

I have been glued to my television and radio this past week trying to make sure I am up to the minute on the worldwide tensions and the profound impact the war is having on all of us. I can only say that my thoughts and prayers are with those in the Middle East. I hope that by the time this column goes to press, peace will be at our doorstep.