Financial reporting

November 1, 2013

  Russell Golden used his first major speech as FASB’s chairman to describe plans to increase the efficiency and effectiveness of the board’s operations.

Golden provided wide-ranging remarks about FASB’s future as he spoke at a one-day conference in New York City celebrating the board’s 40th anniversary.

He said the board needs to evaluate its agenda decision process, improve its Accounting Standards Codification (ASC), and attempt to shorten the duration of its projects while enhancing the projects’ quality.

Golden said FASB will analyze areas where the ASC may be improved. The board will determine whether it can improve how it writes and communicates changes to the codification.

Some of the more confusing sections will be rewritten, Golden said. The board currently is rewriting the ASC’s liabilities and equity section.

“We should listen to our stakeholders across the country who have delivered mixed reviews regarding the codification,” Golden said. “Most agree and applaud the concept of the value of the codification, but they also observe that, as presently constituted, it is very cumbersome and not user-friendly.”

FASB also plans to:

  • Continue improving the way it communicates with stakeholders. Focusing on nontechnical audiences and “plain English” explanations is a key objective.
  • Reduce the complexity and cost of applying standards. The work of the Private Company Council (PCC) plays a role in that, but simplicity is sought for both private and public companies.
  • Increase its cooperation with its parent organization—the Financial Accounting Foundation (FAF)—and GASB, which also falls under FAF’s umbrella.


In addition, Golden said, FASB plans to continue pursuing convergence with the International Accounting Standards Board (IASB) while also carrying out its mission of improving U.S. capital markets. He said this can be accomplished by:

  1. Completing the remaining major convergence projects on revenue recognition, leases, financial instruments, and insurance.
  2. Considering IFRS and convergence while making changes to U.S. GAAP.
  3. Actively participating in the development of IFRS.
  4. Enhancing relationships and communications with other national standard setters.


  A new tool developed by the AICPA provides guidelines to help privately held businesses determine which accounting framework best meets their financial reporting needs.

The AICPA in June released the new Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs, available at tinyurl.com/bql5o8e), for use by private, owner-managed businesses when GAAP financial statements are not required.

Meanwhile, FASB and the PCC are developing potential alternatives for private companies within GAAP. Four narrowly scoped alternatives for private companies have been proposed by FASB and are under consideration by the PCC and FASB.

The AICPA developed its decision-making tool with input from the National Association of State Boards of Accountancy. The tool, presented as a nonauthoritative aid whose use is not required, takes readers through a step-by-step process for choosing a framework.

The tool, available at tinyurl.com/pyjmkzv, immediately advises use of GAAP financial statements for entities that:

  • Face a reporting requirement that demands GAAP-based financial statements; or
  • Operate in an industry that uses transactions requiring highly specialized accounting guidance that makes use of a non-GAAP framework insufficient for financial reporting.


For the remainder of privately held entities, the tool presents considerations to help decide whether GAAP, the FRF for SMEs, cash/modified cash basis, or tax basis is the most suitable accounting framework. Organizations also are advised to consult with their CPA firm and external stakeholders, where appropriate.

Before issuing the tool, the AICPA released illustrative financial statements and disclosures (available at tinyurl.com/n9xvsd8) as an aid to implementing the FRF for SMEs that help distinguish between financial statements based on the new framework and GAAP-prepared statements.


  FASB formally issued for public comment a proposal that would exempt many private companies from the requirement to apply variable-interest entity (VIE) consolidation guidance to lessor companies under common control.

The proposal, which was originally advanced by the PCC, would create an alternative within U.S. GAAP that would address a common source of frustration for private companies and their financial statement preparers.

Under the proposal, Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements (formerly FIN 46(R) and FASB Statement No. 167), a private company lessee would have the option not to apply VIE consolidation guidance when:

  • The lessor and the private company are under common control;
  • The private company has a leasing arrangement with the lessor; and
  • Substantially all activity between the two companies is related to the lessor’s leasing activity.


The proposal is available at tinyurl.com/ozm89xn.

Additional disclosures would be required of private companies that apply this exemption. These disclosures would include:

  • The key terms of the leasing arrangements.
  • The amount of debt and/or significant liabilities of the lessor under common control.
  • The key terms of existing debt agreements of the lessor under common control.
  • The key terms of any other explicit interest related to the lessor under common control.


The comment period ended Oct. 14. The effective date would be determined after the PCC considers feedback received on the exposure draft.

After reviewing feedback, the PCC will have an opportunity to make changes and hold a vote that would forward the final version of the GAAP exception to FASB. If FASB endorses the exception, the alternative would be written into GAAP.

Companies that can use the exception would continue to apply other applicable FASB guidance, including Topic 840, Leases, and Topic 460, Guarantees.


  FASB voted to propose changes designed to improve the relevance and reduce the complexity of development-stage entity financial reporting.

The board planned to issue an exposure draft by the end of October that would apply to public and private entities.

During a July 16 meeting, the PCC recommended that FASB add a project to its technical agenda that would help decrease the complexity of financial reporting for all organizations that are in the development stage.

According to FASB, a development-stage entity devotes substantially all its efforts to establishing a new business and:

  • Has not begun planned principal operations; or
  • Has begun planned principal operations without producing significant revenue.


U.S. GAAP requires development-stage entities to present the same basic financial statements and apply the same recognition and measurement requirements as established operating organizations for revenues, startup costs, and other similar costs.

Development-stage entities also are required by U.S. GAAP to present inception-to-date information about income statement line items, cash flows, and equity transactions. The cost and lack of relevance of these additional presentation requirements has led to concerns among stakeholders.


  Accounting standards for risk financing and insurance-related activities of state and local governments, including public risk pools, achieve their purpose, according to a Financial Accounting Foundation (FAF) review report.

GASB Statements No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and No. 30, Risk Financing Omnibus, were reviewed by a FAF post-implementation review (PIR) team. The full report is available at tinyurl.com/ov4rnha.  

In addition, the PIR team:

  • Is reviewing FASB Statement No. 157, Fair Value Measurements. The review will include a survey of stakeholders about the application and effectiveness of the standard.
  • Will start a review of FASB Statement No. 123(R), Share-Based Payment, later this year.


Parties who would like the opportunity to participate in PIR surveys can register online at tinyurl.com/c467dkj.


  FAF issued a revised proposal describing a process that would decide which information GASB could consider for its standard setting for state and local governments.

Under the proposal, GASB would consult with the FAF trustees’ Standard-Setting Process Oversight Committee to determine whether particular information falls within the scope of GASB’s standard-setting mission.

The revised proposal is available at tinyurl.com/nek2ua5. Comments were due Sept. 30.

The revised proposal diminishes the role the FAF trustees would have performed under the original proposal. FAF Chairman Jeffrey Diermeier said in a news release that many stakeholders had expressed concerns that the trustees were stepping into GASB’s standard-setting role.


  FASB released its proposed 2014 U.S. GAAP Financial Reporting Taxonomy.

The taxonomy consists of a list of computer-readable financial reporting labels coded in XBRL. The proposal contains updates for accounting standards and other recommended improvements to the official taxonomy, which is used by public issuers registered with the SEC.

Comments on the proposal, which is available at tinyurl.com/lcqcex3, were due Oct. 31. FASB plans to complete and publish the 2014 U.S. GAAP taxonomy early next year.

Although FAF, FASB’s parent organization, maintains the taxonomy, questions about using it to create and submit XBRL-tagged files in compliance with SEC rules should be directed to the SEC.

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