REPORT ON STANDARDS OVERLOAD

By John F. Burke, CPA

The Report of the Private Companies Practice Section's Special Task Force on Standards Overload was issued in August 1996. The task force was established in January 1995 to make recommendations to the Executive Committee of that section concerning actions that could be taken to address the problems of standards overload. The task force was composed of members from small firms that provide financial statement services to small nonpublic entities.

Standards overload was defined
by the task force as being the
result of--

* the imposition of uniform recognition, measurement, and disclosure standards on all entities without adequate consideration of the unique needs of different types of entities and financial statement users, and the costs and related benefits of alternative approaches to meeting those needs, and

* the rapid change in and expansion of performance and reporting standards.

After considering input from various sources including focus groups, etc., the task force concluded there was no magic bullet to solve the problem. However, it did have a number of specific recommendations to ease the
burden.

Increase Small-Firm Input in the Standard-Setting Process. This recommendation addresses the first source of the problem and primarily involves the Technical Issues Committee (TIC) of the AICPA's PCPS. The task force recommends that the staff supporting the TIC be increased by one individual who would serve as a liaison between the TIC and standard setting bodies. It also recommends that the Financial Accounting Foundation appoint trustees, members, and staff who are familiar with the needs of small nonpublic companies. The final recommendation in this area was for standard setters in the U.S. to attempt to minimize differences with their counterparts setting international standards.

Facilitate Access to the Professional Literature and Improve the Understandability of that Literature. The recommendations in this area are addressed to the AICPA and include the following:

* Relevant professional literature should be provided to members in a single CD-ROM format.

* Members should be provided the option of ordering a minimum library package when paying their annual dues.

* The hours and staffing of the Technical Information Hotline should be expanded.

* Articles on each new pronouncement should be published in the Journal of Accountancy in a succinct and understandable format that would be relevant to small entities.

* Access to professional literature should be made available to CPAs for a fee through the AICPA's FAX Hotline or via computer.

* Standards should be written in unambiguous and easy to understand language and provide examples where appropriate.

Sensitize Peer Reviewers and Reviewed Firms to Standards-Overload Concerns. The task force was concerned that peer reviewers had findings and made recommendations that went beyond standards. The Practice Monitoring Division should ensure that reviewers are well qualified and do not expect firms to exceed standards. In addition, firms should be encouraged to challenge findings and recommendations they feel go beyond standards by requiring reviewers to cite relevant supporting professional literature.

Provide Guidance on Disclosure in OCBOA Presentations. The task force concluded that the guidance in SAS No. 62 on disclosures in OCBOA financial statements is too broad and recommended that standard setters issue more specific guidance on appropriate disclosures in such statements.

Provide Guidance Concerning Materiality and Financial-Statement Disclosures. It appears the perception of many CPAs is that the materiality threshold for small nonpublic companies is relatively low and they fail to recognize there are qualitative factors in addition to quantitative factors to consider. The recommendation is that the AICPA should provide guidance on materiality considerations in applying accounting standards and judging financial statement disclosures for small nonpublic companies.

Provide Practice Guidance Concerning Compilation Engagements. Although the "A" word was not mentioned, the task force was obviously influenced by the project on assembled financial statements in making this recommendation. The members concluded that CPAs need more guidance in performing engagement alternatives to full disclosure financial statements, namely compilations that omit full disclosures and OCBOA financial statements. The recommendation was that the AICPA develop a four-hour CPE course on these options that would be given maximum exposure.

Continue to Evaluate the Effectiveness and Relevance of Disclosures. The last recommendation was an indication of strong support for the FASB's project to revaluate the information needs of financial statement users.

Judith O'Dell, CPA, chaired the special task force and presented the report to the AICPA's board of directors in September 1996. O'Dell said the board was receptive to the recommendations and that staff of the AICPA was instructed to report back on each of the recommendations by July 1, 1997. O'Dell in an interview with The CPA Journal made a special plea for standard setters to stop inventing new terms every time a new standard is set.

A more detailed discussion of the task force's recommendations is included in the AICPA's Audit Risk Alert­1996/97 and Compilation and Review Alert­1996/97. Copies may be obtained from the AICPA at (800) 862-4272. *