Once you become a CPA, every year you will need to earn a certain number of Continuing Professional Education (CPE) credits in order to maintain your license. The purpose of the CPE requirement is to encourage CPAs to stay current in their knowledge and become familiar with developments in the accounting profession. At the current time, CPE or no CPE, all of us (accounting professionals, academics, and students) need to keep abreast of the many changes taking place in accounting. At no time in recent memory, have we had so many important changes in our accounting standards in so short a time as are being considered currently.
Recently, I attended the 2011 Accounting Conference for the Controllers’ Leadership Roundtable hosted by the Corporate Executive Board. The conference focused on three key accounting areas – revenue recognition, leases, and financial instruments. The FASB and IASB have recently re-exposed the final draft for revenue recognition while the final draft for leases is expected to be re-exposed in Q1 2012. Converged standards for both revenue recognition and leases are expected to be issued in the 2nd half of 32012. The outcome for the financial instruments project is much more uncertain because of the fundamental differences between the FASB and the IASB position.
I served as a panellist on the revenue recognition discussion panel. In a survey of controllers, revenue recognition was identified as the most crucial accounting issue for 2011. The revenue recognition exposure draft proposes a single contract-based asset and liability model that represents a fundamental shift in accounting for and recognizing revenue. While the new model will impact some industries more than others, all companies will have to make significant changes in order to comply with the requirements of the proposed standard. The proposal does away with many of the bright lines and industry specific guidance that we currently have for revenue recognition and replaces them with a single principles-based standard. Conference participants agreed that this would require increased use of judgment and estimates. The examples discussed included identifying separate performance obligations, incorporating time value and variable considerations in the transaction price, and other issues related to collectability. In conversations with controllers, all agreed that there would be a steep learning curve in terms of implementing the proposed standard. Implementation issues discussed included performing an assessment of existing sales contracts and arrangements, evaluating existing IT systems and identifying the need for any upgrades, as well as considering the potential impact on existing controls and processes. Similarly, major changes are anticipated in how we account for leases and financial instruments.
In talking to controllers and partners of Big-4 accounting firms at the conference, I sensed some nervousness in terms of the preparedness of companies to respond to these and other major changes on the horizon. Of course, this also has major implications for all of us. Does this mean that what we are learning in the classroom is not that important since it will soon become outdated because of significantly new standards? Not necessarily, because the anticipated new standards have significant transition periods. For example, the effective dates for the proposed standards for revenue recognition and leases are no sooner than 2015 which suggests that the existing standards will remain in effect until then. However, since both proposed standards require retrospective application, we can anticipate that companies will begin to account for transactions under both the old and the new standards starting as early as 2013 – a form of parallel processing. So while we cannot throw the old playbook out as yet, we need to be nimble and recognize the important changes that lie ahead.
The faculty is already attempting to integrate some discussion of contemporary developments especially in our advanced accounting classes. Moreover, working with the Accounting Club, we are bringing in outside experts to comment on important changes taking place in the accounting landscape. For example, this semester members of Deloitte gave an excellent presentation on anticipated changes in revenue recognition in Professor Emily Lindsay’s class, an event co-sponsored by the Accounting Club, and open to all accounting students. I would strongly urge you to be proactive in becoming familiar with the important changes impacting accounting. You can take a number of steps. You can participate actively in events sponsored by the Accounting Club that bring in outside experts to discuss contemporary developments; if you have a term paper, try to target it towards an emerging issue in accounting; and attempt to keep abreast of the activities of the FASB and the IASB. For example, the big accounting firms provide frequent updates on important accounting issues that can be accessed for free on their websites.
In closing, this is an exciting time to enter the accounting profession. Change can be disruptive but it also provides a lot of opportunities. Good news is that the big-4 partners and controllers that I talked to at the conference agreed that accounting opportunities would be expanding greatly in the next few years.
