Financial reporting


  A Financial Accounting Foundation (FAF) team gave FASB’s standard on business combinations a mixed review, according to information provided by FAF.

The FAF post-implementation review team performed an in-depth analysis of FASB Statement No. 141 (revised 2007), Business Combinations (Statement 141R), which is codified in ASC Topic 805, Business Combinations.

Statement 141R’s principles and requirements generally are understandable and can be applied as intended, according to the review report, available at tinyurl.com/k7fcvlm. The review also found that investors generally find the information resulting from application of the standard useful, and that the standard generally resolves some of the issues associated with the purchase method of accounting for business combinations.

But the report said investors question the reliability of reported information for business combinations that:

  • Include a significant portion of assets and liabilities that are difficult to measure at fair value;
  • Result in a bargain purchase;
  • May in fact be asset purchases (such as single real estate assets or drug compounds); or
  • Involve mutual entities or more than two entities.


In certain areas, the standard also is more costly and complex to implement than FASB had anticipated, according to the review, which was undertaken by a FAF team working under the oversight of the FAF board of trustees.

The International Accounting Standards Board (IASB) also is conducting a post-implementation review of IFRS 3 (revised 2007), Business Combinations, which was issued concurrently with Statement 141R. The FAF review team’s next task will be reviewing Statement No. 157, Fair Value Measurements.

FASB is giving consideration to the findings described in the report in other projects that already have begun. The board will wait for the results of the IASB’s review and the Statement No. 157 review before taking any standard-setting action. FASB’s full response is available at tinyurl.com/kzfebyh.


  The AICPA Financial Reporting Executive Committee (FinREC) expressed significant objections to FASB’s financial instruments impairment proposal.

The high-profile project is designed to address some of the causes of the recent financial crisis and calls for measurement and reporting of expected losses rather than incurred losses.

Although the project began as a convergence effort with the International Accounting Standards Board (IASB), FASB took a different path from the IASB in developing a current expected credit loss (CECL) method for impairment.

In a comment letter to FASB, FinREC said the proposed CECL model, as well as the current IASB proposal, require significant work to be operational and result in improved, faithful financial reporting. The letter is available at tinyurl.com/n8qrxko. FinREC is a senior committee of the AICPA for financial reporting and is authorized to make statements on behalf of the AICPA on financial reporting matters.

According to FinREC, FASB’s proposed model:

  • Lacks a strong enough conceptual basis for sound financial reporting;
  • Departs significantly from the incurred loss model;
  • Creates two incompatible loss contingency models;
  • Double-counts expected losses; and
  • Unjustifiably increases the accounting and financial reporting burden for smaller financial institutions and nonfinancial services entities.


FinREC encouraged FASB to keep working with the IASB to reach a converged, high-quality model for reporting impairment of financial instruments.


  FASB voted to indefinitely defer certain disclosures about investments held by a nonpublic employee benefit plan (EBP) in the plan sponsor’s own equity securities. Stakeholders have expressed concerns to FASB that certain disclosure requirements for nonpublic EBPs would reveal sensitive proprietary information of private companies
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After the vote, FASB was scheduled to issue an Accounting Standards Update, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04, reflecting the change. The deferral will be effective upon issuance for all financial statements that have not yet been issued.

The indefinite deferral applies to disclosures of certain quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for investments held by certain employee benefit plans, according to a FASB news release. The deferral applies specifically to EBPs—other than those plans that are subject to SEC filing requirements—that hold investments in their plan sponsors’ own nonpublic entity equity securities, including equity securities of their nonpublic affiliated entities.

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