From the Editors
In celebration of the Journal's 85th anniversary, highlighted below are some of the unresolved accounting, auditing, and financial reporting issues which have surfaced many times over the years—and continue to be of pressing import to the profession, as evidenced by the provocative articles we have published in 2015. In case you missed them the first time around, here is a look back at those pieces that the editors believe should be on your year-end reading lists.
Throughout the year, Journal authors have identified and analyzed unresolved issues in accounting, auditing, and financial reporting. A number of these issues are naturally evolutionary. Architects, physicians, engineers, and attorneys have collaborated in guilds or professional societies for centuries. Accountancy is still a relatively young profession, lacking centuries of code, case law, or precedent.
CPA Firm Practice: Our Raison d'Être
The CPA profession arguably began anew in the 1930s when the federal government granted it a monopoly to audit publicly traded companies. “What is our raison d'être as CPAs? Are we protectors of the public trust—as George May of Price Waterhouse and Robert Montgomery of Coopers & Lybrand (and president of the NYSSCPA) envisioned 85 years ago? Are we the gold standard trusted advisor to our clients? Are the two goals mutually exclusive—is it our responsibility to serve our clients or the public?” (“A Message from the Editor-in-Chief,” January, p. 11). I posed these questions at the very beginning of the year, using our anniversary year to reflect on whether, 85 years later, our role in society today has changed from its original mission.
In our August issue, we looked at the past predictions made by Howard Stettler (“A Survey of Perspectives on the Future of the Accounting Profession: Part I,” pp. 6–9), as well as William D. Huber, Ric Payne and others (“A Survey of Perspectives on the Future of the Accounting Profession: Part II,” pp. 10–12). Editorial Board member Douglas R. Carmichael also provided his insight on the state of the profession. He questions whether we are still heading in the right direction as a result of the organizational and cultural changes over the past 30 years (“Book Review: Insights from Accounting History: Selected Writings of Stephen Zeff,” pp. 22–23). He cautions the profession by quoting George Santayana: “Those who cannot remember the past are condemned to repeat it.”
On the international front, business enterprises have grown to span the globe and handle billions of accounting transactions every day—yet we as a profession still lack a unified definition of basic accounting terms and reporting practices that are understood across national boundaries. After decades, the movement to converge international standards with U.S. GAAP is over, according to Allan B. Afterman, and “many observers believe that the movement to require or permit U.S. public companies to prepare IFRS financial statements died along with it” (“The SEC and IFRS: Finally Coming to an End?,” August, pp. 70–71).
In our January issue, we took a look at “skepticism,” a poorly defined term that is relatively new to the accounting and auditing literature, having only been added about 40 years ago (“Auditors Still Challenged by Professional Skepticism,” Thomas Ray, pp. 21–27). Ray acknowledges the growing criticism of the profession as not “skeptical enough” and suggests changes to the definition of the term that could improve audit results in the future.
In our January issue, Vince Love stressed the importance of the notes to the financial statements—an integral part of understanding an entity's performance. His article is an ode to the value of the notes and a exhortation to CPAs to get their terms right: “The Notes to the Financial Statements on the other hand are an inseparable part of the financial statements and are not bibliographic references or ancillary comments—in other words, they are not footnotes or endnotes” (“Have You Ever Seen ‘Footnotes’ to the Financial Statements?,” pp. 16–17). He laments that even FASB does not even always get the terminology right in its updates and publications.
The accounting for leases is on the front burner today—as it has been for decades. In our January issue, Dennis Chambers, James Dooley, and Catherine A. Finger prepared us to face the unknown in the form of the upcoming guidance for leases (“Preparing for the Looming Changes in Lease Accounting,” p. 38). They conceded that “most companies with large portfolios of operating leases do not have ready access to the lease contract information they will need for reporting under the new standard.” In our June issue, Yigal Rechtman responded to the article, similarly arguing that “there is an operational and accounting challenge in acquiring, retaining, maintaining, analyzing, and reporting the various types of leases defined by FASB” (“Letter to the Editor: A Software Solution for Leases May Prove Elusive,” p. 21).
Commercialism versus Professionalism
Perhaps no article has garnered as much reader comment as Vincent J. Love's viewpoint in our February issue, “Can Professionalism and Commercialism Coexist in CPA Firms?” (pp. 6–10). The author asked whether “the erosion of CPAs' control of the entity [through consulting and other advisory functions] making business decisions, which can indirectly affect the delivery of assurance services, could eventually put the profession's future role at risk.” As readers may recall, a similar question was asked 82 years ago of Colonel Arthur Carter, former NYSSCPA president, when he testified before Congress at hearings on the Securities Act of 1933. Upon being asked who audits the auditor, he responded, “Our conscience.”
Our March issue focused on fraud and forensics. “The Past, Present and Future of Forensic Accounting” focused traced the history of the issue, from auditors' primary role in detecting fraud in the early 20th century, to the large fraud cases of the 1970s, and current environment which finds the niche of fraud detection and prevention to be a flourishing practice area (G. Stevenson Smith, March 2015, p. 21). Following up on this theme as well was “A Basic Field Guide to Fraud,” by Patricia Z. Galletta (pp. 54–59), which outlined some of the more common schemes, relevant cases, and preventative measures. From a liability perspective, Ron Klein advised readers on “How to Avoid or Minimize Fraud Exposures” (pp. 6–8). Later in the year, Howard B. Levy, in “A Fresh Look at Fraud Risk,” discussed the need to better understand “internal control over journal entries” as a result of “several highly publicized corporate frauds” (October, p. 6).
It is astonishing that, 85 years since the Journal's launch, revenue recognition remains one of the profession's top unresolved issues. In the March issue, Robert A. Dyson provided illustrative “Case Studies in the New Revenue Recognition Guidance” (p. 22). The topic is foremost on the minds of standards setters and regulators, as evidenced by its prominence at Baruch College's Annual Financial Reporting Conference, covered in our July issue (“How to Recognize Revenue: An Implementation Update,” pp. 32–35). Elsewhere in that issue, Kathryn Yeaton focused more clearly on how to analyze revenue from contracts with customers under the new model (“A New World of Revenue Recognition,” pp. 50–53).
Central to the accounting literature is acceptance of a body of knowledge called Generally Accepted Accounting Principles (GAAP). However, in our May issue, Howard B. Levy questioned whether GAAP was ever really “generally accepted.” Levy claimed that some critics “have asserted that the term ‘generally accepted accounting principles’ (i.e., GAAP) has lost its ‘general’ acceptability over time, and that it is now time to make accounting standards both relevant to users and relatively simple for professionals to understand and implement” (May, p. 12).
Accounting for goodwill is once again in the spotlight due to FASB's issuance of ASU 2014-02. This intangible asset can be one of the largest items on a company's balance sheet, and large goodwill impairment losses can generate attention from investors and the public. In their June article, Mark Hogan and Linda Matuszewski noted that there are five sets of standards addressing the accounting for goodwill, ranging from Big GAAP, Little GAAP, IFRS, IFRS for SMEs, and the AICPA's FRF for SMEs (“Good Will Come of Goodwill, But Accounting Depends,” pp. 44–49). This complexity is daunting for both practitioners and students, and the authors ask the question: “Is it reasonable to expect educators to adequately cover, and students to comprehend and retain, five sets of standards?”
Perhaps one of the most controversial “unresolved issues,” raised by authors Holger Spamann and James Naughton, regards how effective GASB has been and whether it can ever be effective (“Deficiencies in Accounting and Financial Reporting of State and Municipal Governments,” June, pp. 16–17). Formed almost a decade after FASB and finally funded by FINRA in 2010, GASB is responsible for setting standards for government accounting. Spamann and Naughton argue that following GASB's accounting standards can effectively result in fiscal mismanagement. Their solution is to “advocate a movement to an accounting system more similar to FASB's.”
Changes at the Journal
We would be remiss in not high-lighting other changes in the magazine that you might have missed as well.
This year we added several new monthly columns written by nationally renowned experts in their fields. These columns reflect the changing demographics and needs of our readers. We also introduced a monthly guest editor column, for which we solicited some insights from accountants “across the pond” in order to reflect the expanding global reach of business and regulation. Readers may have also noticed shorter articles, revised formats, and added graphics that we hope will interest and engage. We also added a new tag line, “The Voice of the Profession,” to demonstrate our commitment to amplifying the voices of our readers as the profession undergoes transformational change in the coming years.
Finally, we would be remiss if we did not mention our being named as one of the finalists in the Eddie and Ozzie Awards, a national magazine competition by Folio magazine for “excellence in magazine editorial and design,” for our “Then & Now” series.