The Standard-Bearer

Chairman examines AcSEC’s changing role and the progress of international convergence.

B en Neuhausen took the helm of the Accounting Standards Executive Committee in 2005 and led the all-volunteer AICPA committee through a tumultuous time during which its responsibilities shifted. On his watch as chairman, AcSEC transitioned from a standard-setting body to a source of practical, nonauthoritative guidance for CPAs and other financial professionals.

Neuhausen, a former Arthur Andersen partner who is now a partner and the national director of accounting for BDO Seidman LLP, has built a reputation for accounting standards acumen. He chaired the task force on real estate time-sharing transactions and shepherded the resulting guidance, SOP 04-2, to completion. SOP 98-1 on internal use software, SOP 98-5 on startup costs and SOP 00-2 on producers and distributors of films, issued during his years on the committee, updated accounting for those transactions to reflect significant changes. The committee also issued a host of SOPs that kept accounting for the insurance industry current. Neuhausen will complete his service as chairman and step down from AcSEC following the committee’s September meeting. He spoke recently with the JofA about the committee, accounting standards setting and convergence to International Financial Reporting Standards. What follow are excerpts from that conversation.

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JofA: What was it about AcSEC that kept you involved and engaged for a decade?

Neuhausen: Well, when I was first appointed, I’d say that what appealed to me was the intellectual challenge of dealing with all these accounting issues related to different transactions, different industries and the constant stimulation of understanding the issue and working through them to the best solution.

But I would say now, looking back on my 10 years, what I have really enjoyed most about the committee is the people—the tremendous diversity of people on AcSEC, its task forces and the AICPA staff and their different backgrounds, interests and perspectives. All AcSEC and task force members are volunteers. All of them are committed to the process of trying to make standard setting and private sector standard setting work well and to come up with the best answers and provide the best guidance to the profession. The AICPA staff have great historical knowledge, and many of them are leading experts in their areas.

JofA: What are some of the most significant accounting standards developed in the years since you served as a FASB fellow in 1979–1981?

Neuhausen: There are several I think about that are particularly significant. There were two statements on accounting for income taxes—96 and 109—that represented a major change from the standards in place when I was an FASB fellow.

When I was a fellow in 1980, there was no specific guidance on accounting for derivatives. FASB issued Statement 80 in the middle of the 1980s and then Statement 133 right toward the tail end of the ’90s and then several amendments, interpretations of 133 thereafter. So we now have a very comprehensive body for accounting for derivatives.

Finally, I’d include Statements 87 and 106, dealing with accounting for pension and post-retirement benefits. Statement 87 was a significant change that made pension accounting more transparent and more understandable, and Statement 106 brought the accounting for post-retirement benefits from the obscurity of cash method to accrual accounting with comprehensive disclosures.

JofA: On balance, how would you say those changes have affected the profession?

Neuhausen: Well, on balance, I think it is a mix. I think there are pluses and minuses. The new standards have been an improvement but were not necessarily the best standards we could have had. I think some of the FASB statements, and Statements 109 and 133 in particular, have raised the level of complexity of accounting standards. I think FASB has gravitated toward very highly technical and highly theoretical standards that, in many cases, practitioners have found counterintuitive and contrary to common sense. That has made some of the recent standards much harder to implement than they needed to be.

JofA: What major changes in the standard-setting process have happened since your FASB fellowship?

Neuhausen: Well, I think there have been two major changes in the process since I was there. One was the creation of the Emerging Issues Task Force, which was in 1984. There was no body before that that was charged with dealing quickly with emerging accounting issues. FASB was trying to do it, but it was very hard for FASB to deal with emerging issues along with the longer-term projects.

I think the EITF did fill that purpose, and it was a significant change in the way we approached accounting standards in the U.S. I think it has limited proliferation of diverse practices. It has kept accounting more consistent.

I think the other major change, which is a more recent one, has been the concentration of all the standard setting at FASB and bodies under direct FASB supervision. AcSEC, as the representative of the AICPA, did set authoritative standards at levels B and C in the GAAP hierarchy. A couple of years ago FASB decided that they didn’t want AcSEC issuing authoritative guidance any more and that all the authoritative guidance would come from FASB or groups controlled by FASB and that AcSEC’s guidance would become nonauthoritative.

JofA: What do you see as AcSEC’s role in financial reporting in the future?

Neuhausen: I think AcSEC’s most important role is to issue helpful nonauthoritative guidance in two forms. One would be the updates of the audit and accounting guides, and the other would be the technical practice aids that the AICPA staff develops with review by the AcSEC planning subcommittee.

AcSEC is involved right now with updating about half a dozen of the audit and accounting guides. The two we’re furthest along with are airlines and casinos. The existing guides are more than 20 years old, and those industries have changed tremendously in that period of time. There are a lot of questions about what authoritative guidance is on point and how it should be applied. I think AcSEC is going to make a major contribution to improving practice in those industries and helping accountants in those industries understand the requirements much better than they’re understood today.

Another major role that AcSEC fulfills is to serve as the voice of the AICPA in responding to proposals from the FASB or, increasingly, from the IASB. AcSEC issues comment letters on the exposure drafts giving our views—on what we like versus what can be improved—in the exposure drafts. We are in a sense the voice for many in the U.S. profession who don’t have time to send their own comment letters.

JofA: What are your thoughts about requiring U.S. entities to adopt IFRS instead of U.S. GAAP?

Neuhausen: I have been more a proponent of permitting rather than requiring U.S. entities to follow International Financial Reporting Standards at this time. I was involved in the task force at the CAQ [Center for Audit Quality] that prepared a first draft of response to the SEC concept release. I was a proponent for permitting U.S. entities to voluntarily adopt International Financial Reporting Standards. I thought that would be a good approach to seeing how smoothly the process worked. It would be an evolutionary way to get U.S. accountants up to speed on IFRS and would also offer an opportunity to see how investors and other user groups reacted to IFRS for U.S. companies.

After a period of voluntary adoption, we’d have some good information to decide whether it makes sense to require IFRS for all U.S. companies or for certain kinds of U.S. companies.

But the [momentum] now does seem to be more in the direction of requiring U.S. entities to adopt IFRS. I have mixed feelings about requiring it. I think clearly in some respects it’s a step forward to have U.S. companies using the same accounting that everyone else in the world is using. But I’m concerned about the implementation. Depending on what the time frame is, do we have enough accountants in the U.S. knowledgeable enough about IFRS to have a smooth transition?

I know that part of the idea of requiring IFRS is that regulators would think through all the steps and lay out a timetable so that we could move in an orderly way. I am concerned that the regulators may not think of everything, that things may not go entirely according to plan, and there may be some glitches. The voluntary approach as a starting point would be more manageable than a requirement at this time. I believe that a market-driven approach of voluntary adoption of IFRS would go more smoothly than a required “command and control” adoption.

JofA: You have always been a proponent of work/life balance, even before it was in vogue. How do you think work/life balance efforts have succeeded in the accounting profession, and what does the future hold?

Neuhausen: It is true that I did try to balance my personal life with my professional life once I got married in 1987. I mainly credit my wife for that, for saying, “You need to get your priorities straight. Your wife and your kids count here, and they need you, too.” I tried to manage the hours in the office. I really made an effort to do that, and I found that, for the most part, if I made an effort to do it, I was usually successful.

I get the sense that when [work/life balance initiatives] were first rolled out, a lot of people were kind of nervous about them. If I take advantage of this program, is it going to retard my career? Am I going to be looked at unfavorably?

My sense is that the leadership of the firms have been behind these programs—have been sincere about them—and as a result people have seen that trying to achieve better balance between their professional and personal lives does not harm their career advancement. Therefore, more and more people are focused on balancing their personal and professional lives, and it is shifting the way the profession works.

JofA: Late last year you were diagnosed with metastatic pancreatic cancer. How has dealing with cancer affected your career and your AcSEC chairmanship?

Neuhausen: The first couple of months after I started chemotherapy were pretty difficult. The treatments really knocked my energy level down, and I had fevers and other complications and numerous doctors’ appointments. Even on days without appointments, I often didn’t feel strong enough to commute into the office. There were two AcSEC meetings that I couldn’t attend in person.

My colleagues at BDO Seidman could not have been more supportive, with numerous messages of encouragement, time off whenever I needed it and flexibility to work from home. Similarly, my colleagues on AcSEC and the AICPA staff were wonderfully supportive and pitched in for those two meetings by divvying up the responsibility to lead AcSEC’s discussion of each agenda item. It was like having half a dozen volunteer assistant chairmen at those meetings to keep the projects moving. My former colleagues from Arthur Andersen and numerous other accountants I have worked with over the years also provided incredible encouragement. I have really been overwhelmed by how many accountants have gone out of their way to send their good wishes in phone calls, cards, letters and e-mails to boost my spirits.

As of June, I had received more than 500 messages of support and encouragement on my personal Web page at —the vast majority from members of the profession. That response is a real tribute to the caliber of people in the profession and a commentary on how supportive and close-knit the profession is. This recent experience is my second chance to see what a terrific profession we have. I lost my wife to breast cancer six years ago. Then, too, other accountants were wonderfully supportive with condolence calls and letters and generous donations in memory of my wife.

After working through the initial complications, my chemotherapy has become more manageable. I have been able to resume most of my job responsibilities and resume attending AcSEC meetings in person. While I am feeling good, it is likely that tougher days lie ahead. Pancreatic cancer is one of the most aggressive cancers, and the long-term survival rates are not good. For now, I savor every day and am grateful for the strength to fill my roles as parent and as partner. If and when my condition worsens, I feel confident that I’ll continue to receive incredible support from my firm and the entire profession.

Bonus Interview Question

JofA: Do you think that the U.S. should continue to have a national standard setter even if we move to IFRS?

Neuhausen: I think that’s something that we would need to assess as we move along. For a number of reasons, U.S. GAAP is more prescriptive than IFRS. Under GAAP, we have a lot more guidance; we have fewer choices, fewer alternatives. There are a number of reasons for that including the way the SEC regulates the reporting of registrants and the U.S. legal system, and those environmental factors aren’t going to change overnight. So we may find that even if the U.S. switches to IFRS, we will need more detailed guidance and more industry guidance than other countries do. A U.S. national standard setter could fill in the additional industry guidance, identify which of multiple alternatives are and are not acceptable interpretations for U.S. purposes, etc.

I guess the other [question] is would everyone in the U.S. be switching to IFRS? Any SEC initiative would only affect public companies. There’s really no central body that tells private companies what reporting to follow. Many private companies might choose to switch to IFRS, but others might prefer to stay with the familiar U.S. GAAP. In that case we would still need a standard-setting body to deal with U.S. GAAP for private companies that are still on that basis.

There’s also a question of AcSEC’s role if the U.S. moved to IFRS. As I mentioned, IFRS is a more judgmental framework than U.S. GAAP, with less guidance and more choices and alternatives. Under such a framework, there would be a continued, perhaps even an increased, need for the nonauthoritative guidance that AcSEC now delivers.


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