Advice on how to address the Year 2000 problem continues, with costs mounting. Technology consultants estimate the total global tally to make systems compliant will range from $300 billion to $600 billion through 1999. The IRS currently has 600 people working on its own system conversions at a budget of $800
million.

The CPA profession's rule-making bodies continue to examine tax, accounting, auditing, disclosure, and other issues. Here's an update on several initiatives, and some tools available to help CPAs manage compliance issues for their own businesses and those of their clients.

SEC Requests AICPA Input

Last November, the AICPA met with the SEC to discuss the Year 2000 issue and, as a result, the institute and its SEC regulations committee responded to a request for more information regarding concerns relating to reporting
requirements.

The AICPA raised attention to the fact that although the issue has generated much publicity, many companies still have not yet realized the commitment necessary to address Year 2000 issues in their businesses, and others do not consider such a speculative event as a material issue. The investing public, therefore, may not be receiving important timely information.

The AICPA recommended that the SEC needs to provide further guidance for disclosure in management discussion and analysis reports and when the SEC considers it reasonably likely that the Year 2000 issue would have some significant effect on companies' operations. The AICPA also stressed that the current view of the SEC, that it would be rare for companies to need to make any disclosures in 1997 year-end financial statements, has not been effectively communicated to publicly-listed companies.

Full text of the AICPA's December 9, 1997 letter to the SEC (including appendices with example MD&A scenarios, suggested principles to guide disclosures, and a sample Year 2000 disclosure) is available on the institute's website at www.aicpa.org/belt/sec2000/index.htm. The SEC plans to revise its guidelines, and Congress also has legislation introduced requiring public companies to disclose the nature of their Year 2000 problems.

IRS Rulings

The IRS released a new revenue procedure explaining how to handle Year 2000 costs [Rev. Proc. 97-50]. Companies that use self-developed software can take current expense deductions or capitalize their costs. Those which elect to capitalize generally must amortize the expenses over five years unless the software has a shorter use life.

In most cases, purchased software or upgrades must be written off over five years (unless a shorter use life exists). If the software was bundled with the purchase of a computer, expense can be depreciated as part of the hardware costs. Companies may take annual rental deductions for Year 2000 costs of leased software. Also according to the IRS, Year 2000 costs generally will not qualify for the R&E credit.

IASC Guidance

The Standing Interpretations Committee (SIC), a special standards-setting group of the International Accounting Standards Committee, agreed with FASB's Emerging Issues Task Force in ruling that Year 2000 costs should be expensed as they occur.

According to the SIC, in-house costs to rectify the Year 2000 problem should be registered to expense as materials are used (or labor depleted). For compliance done by contractors outside the company, costs should be recognized as the work is done.

Guidance Available

Numerous organizations have issued practice aids for CPAs on the Year 2000 problem. The Year 2000 Issue: Current Accounting and Auditing Guidance, published by the AICPA, addresses financial reporting, disclosure considerations (for both public and nonpublic entities), auditing, auditor communication with clients, practice management, and related issues.

The AICPA guide is available for free downloading from the institute's website at www.aicpa.org/members
/y2000/index.htm, where links to other resources and a related discussion group are also located. CPAs also can obtain a copy of the guidebook at a cost of $11 for members and $13.75 for nonmembers, by calling the AICPA's Order Department at (800) 862-4272 and requesting Product no. 022503.

SBT Accounting Systems is just one software company that has published a free guide, Year 2000 Workbook, which is available by calling the company at (800) 873-7282. SBT also has a companion Year 2000 Analysis Kit and other diagnostic tools and links to additional Year 2000 resources on its website at www.sbt.com/year2000.

Let the Lawsuits Begin

An interesting side note: SBT was one of the early software publishers to help prepare companies for, and stress the importance of, Year 2000 compliance. This included warnings and advice months ago that the issue could cause a "legal avalanche" from attorneys hoping to cash in on class action compliance lawsuits. Ironically, the software publisher itself was named in one such suit.