The AICPA’s recent conference on current SEC and PCAOB developments featured a panel of SEC deputy chief accountants, each of whom addressed a number of topics and answered questions from the attendees. Mike Starr, the deputy chief accountant for policy support and market monitoring in the Office of the Chief Accountant, talked about his role in identifying and addressing potential financial reporting weaknesses and risks. In his newly created position, Starr said he anticipates holding three to four meetings a year to inform standard setters about trends in financial reporting.

Starr said his initiatives will not replace any existing efforts and his office will not be a decision making or advisory body. His office will mine existing data at the SEC for emerging issues which will become a standing agenda item in meetings with the CAQ, PCAOB, FASB and bank regulators. The goal is to improve responsiveness by all of the key actors, he explained.

Paul Beswick spoke about international financial reporting standards, consolidation accounting and staff speeches. Beswick offered his view that the best approach with respect to IFRS may be to allow U.S. GAAP to continue to exist while FASB works to convert its existing standards to IFRS for issues that are not currently on the FASB/IASB agenda. As new IASB standards are adopted, FASB could consider them for U.S. codification. The IASB has begun thinking about its agenda after the conclusion of its memorandum of understanding with FASB, he said, and he believes that U.S. views will be considered. Beswick added that the focus should not be on deadlines but on getting the standards right.

Beswick noted that one potential pitfall to a transition to IFRS is the sales literature and advertising being marketed by some of the large accounting firms. The advertising literature gives the impression that a company would not be able to convert to IFRS without help, which Beswick said could hinder the eventual incorporation of IFRS.

Beswick also reviewed FASB Statement 167 on consolidation accounting. The statement was issued to address inadequacies in the accounting for how a company determines whether an entity that is insufficiently capitalized or is not controlled through voting should be considered. Beswick said the basic principle is that a reporting entity has a controlling financial interest in an entity if it has the power to direct the activities of the entity and the rights or obligations could be significant. The staff has encountered situations where registrants have continued to apply the quantitative approach in FIN 46(R) rather than the qualitative model in Statement 167.

Beswick’s advice is, when considering the activities that most significantly impact economic performance, it may not be necessary to determine which single activity most significantly affects economic performance. It may be appropriate to consider a group of activities, he advised.

His other advice related to the nature of the rights that should be considered when determining who has power over those activities. The standard requires that only rights which are participating rights should be considered, and not those that are protective rights, when evaluating which party has power over the activities of the entity. The standard provides examples of protective rights, he said, and registrants should consider those examples along with others that exist in the accounting literature when making the evaluation.

Some would prefer to determine whether their rights or obligations could potentially be significant to the variable interest entity based solely on a quantitative approach, according to Beswick, but the model does not accommodate that approach. The model is based on making a determination that incorporates and weighs the context of the entity’s purpose and design. Beswick added that the staff has not developed bright lines that a registrant has to satisfy when applying this aspect of the standard, since that would not promote the objectives of the standard.

On the issue of staff speeches, Beswick said he was once asked if a 15-year old speech was still in force. The standard had changed three times during that span of time and was no longer relevant, he said. Staff speeches often address current and challenging areas of accounting. The objective of the speeches is not to provide an answer, he said, but to outline a thought process to an issue. All of the relevant facts and circumstances cannot be fully addressed in a speech. Speeches address existing GAAP in a specific instance and should not be considered determinative, he said.