What Smaller CPA Firms Can Do About Standards Overload

CPA firms are beginning to rethink their policies regarding the application of accounting standards. Here are a few ways some firms are coping with standards overload:

1. When complex standards like FIN 45, FIN 46 and FIN 48 and others are required in GAAP basis financial statements, some CPAs are recommending noncompliance. Many users of small entities’ financial statements don’t care about application of such standards. Managements’ disclosures of departures from GAAP appear in footnotes and the auditor’s and accountant’s reports contain departure paragraphs describing the noncompliance.
   
   
2. Evaluating the effects of complying with some accounting standards often reveals immaterial affects on financial statements. In such circumstances, applicable standards do not have to be applied or disclosed in financial statements.
   
   
3. Interpretive Rule 203-1 of the AICPA Code of Professional Conduct states “This rule therefore recognizes that upon occasion there may be unusual circumstances where the literal application of pronouncements on accounting principles would have the effect of rendering financial statements misleading.” In such cases, departures from GAAP may be justified and disclosed by managements and accountants.
   
   
4. Using an OCBOA, such as income tax basis or modified cash basis, greatly limits the application and disclosure of many accounting standards. Required disclosures for OCBOA presentations primarily include the significant differences from GAAP and other disclosures necessary to prevent the financial statements from being misleading.
   
   
5. Standard-setters are required to issue exposure drafts of new standards for public comment prior to finalization. Frequently visiting the exposure drafts sections of standard-setters’ websites will provide smaller CPA firms the opportunity to have a voice in their future.