Financial Accounting

What's Hot , What's Not

When it comes to financial accounting standards, it seems, some topics are simply more popular than others. Each year, to order its priorities, the FASB surveys its own board members, its director of research and technical activities, Financial Accounting Standards Advisory Council members and a few others to determine what topics it should add to its agenda. The topics and projects are then ranked on a scale of 1 (place it on the agenda right now even if it means postponing another active project) to 5 (no interest at all in adding it to agenda). What do the standard setters think is important this year, and what can wait?

Top topics for FASB agenda
Topic FASAC members Board members
Revenue recognition 2.32 3.43
Reserve accounting 2.86 3.50
Accounting for intangible assets 2.94 2.38
Disclosure effectiveness 2.94 3.38
1 = Place on agenda now even if another active project has to be deactivated.
2 = Place on agenda when current projects are completed.
3 = Keep in mind for consideration in reasonably foreseeable future.
4 = Do not actively consider in the near future.
5 = Do not add topic to agenda—no interest at all.

Leading the pack are four items with rankings from 2.3 to 3.5. The FASB posted these results, along with a list of the "also rans" and comments from survey respondents, on its Web site ( ) in a 137-page, PDF-format report. Comments below are taken from this report.

A matter of opinion
The survey results showed widespread disagreement among respondents about some issues. Revenue recognition is one example. The SEC's Arthur Levitt has made this a major issue with his frequent comments, and the AICPA has responded with a report summarizing current guidance (see "Highlights," JofA, Mar.99, page 4). However, is this a serious standards problem? One respondent, giving it a 1 (urgent) rating, felt this topic was fundamental to financial accounting and that the FASB needed to take a leadership role. However, another, giving it only a 4 rating, said widely publicized problems such as those at Cendant and Sunbeam were a result of misapplication of GAAP or audit mishandling, not a lack of standards.

Reserve accounting also was subject to debate. One FASAC member felt this topic fell under asset impairment or the definition of a constructive liability and suggested it be handled under other board topics, "at a higher level." However another gave it a 1 rating, saying "misapplication of Statement no. 5, Accounting for Contingencies, combined with the restructuring actions taken by firms, is the most serious detriment to credible financial reporting today–'public enemy number one.'" Two respondents cited the SEC's involvement in this area, but drew different conclusions; one said Levitt's project on earnings management was "too new to influence the board's agenda at this juncture" and gave it a 5. The other said, "This topic has received significant attention from the SEC and I believe that comprehensive guidance is needed in this area" and gave it a 2.

The survey, which is online for the first time, also covered a draft of proposed agenda decision guidelines that include preparing a prospectus for public comment.

FASB No. 75 Sails Into the Sunset

In 1980, the FASB issued Statement no. 35, Accounting and Reporting by Defined Benefit Pension Plans, which applied to the private sector and–as there was no GASB then–to state and local governments as well. Two years later, however, the FASB deferred the statement's applicability to state and local governments. And in 1983, Statement no. 75, Deferral of the Effective Date of Certain Accounting Requirements for Pension Plans of State and Local Governmental Units, made that postponement indefinite and retroactive to December 15, 1980.

Why the repeated deferrals? By the early 1980s, GASB was already in the planning stages. In preparation, the National Council on Governmental Accounting (NCGA) was also considering deferral of its own pension guidance, which differed from Statement no. 35. So, in issuing Statement no. 75, FASB said "mutual deferral of both Statement 35 and NCGA Statement 6 is appropriate while discussions relating to the formation and operation of the GASB are in progress." In the following years, GASB published its own guidance on pension accounting for state and local governments.

In February of this year, FASB realized deferral of Statement no. 35 was no longer necessary. It issued Statement no. 135, Rescission of FASB Statement No. 75 and Technical Corrections, which clarifies that GASB guidance applies to state and local governments and also makes several technical changes to some existing FASB standards. It is effective for financial statements for fiscal years ending after February 15, 1999, with earlier application encouraged.


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