- Taking unnecessary cost and complexity out of the U.S. financial reporting system has been a primary objective for Russell Golden since he became FASB’s chairman in July 2013.
FASB plans to continue its efforts to reduce complexity—while maintaining usefulness of reporting to financial statement users—in the coming years, Golden said during a speech at the AICPA fall Council meeting in Boston.
Recent FASB efforts at simplifying financial reporting have included:
- Expanding the scope of Private Company Council (PCC) issues to include discussion by FASB of public company applicability in areas such as accounting for development-stage entities—which resulted in a new standard for public and private companies—and goodwill impairment.
- Considering cost and complexity in foundational projects that address the core of financial reporting, including FASB’s conceptual framework and disclosure framework projects.
- Simplification projects, which seek narrow-scope changes to GAAP that can reduce complexity in a relatively short time. In such projects, the board has proposed changes in the areas of inventory and extraordinary items, and has added agenda items on share-based payments and balance sheet classification. An additional project on liabilities and equity also is possible.
“The initial focus on private company issues led us to consider the problem of complexity in accounting on a much broader basis,” Golden said. “Complexity carries a high price tag—both for investors and companies that prepare financial statements.”
- Better search and visualization capabilities, more discussion of company strategy, and ranking of risk factors would make corporate financial reporting more useful to investors, according to a new report.
Prepared with the help of a broad spectrum of experts, the report provides recommendations for improving the effectiveness of corporate disclosures. SEC officials have been briefed on the report, which was issued through the Initiative on Rethinking Financial Disclosure and recommends actions designed to improve the content, presentation, and creation process of corporate filings.
The initiative is a partnership of the Institute for Corporate Responsibility at the George Washington University School of Business and the Center for Audit Quality (CAQ), which is affiliated with the AICPA.
As part of the initiative, teams of graduate students from the university, working with an advisory committee of academics, practitioners, and other specialists, developed 11 recommendations to address the top concerns about corporate financial disclosures in the SEC-mandated 10-K annual report.
The increase in the length and, some might say, the unintelligibility of corporate financial reports has created an appetite for new rules that would promote simplicity in disclosures. A KPMG review of 25 Fortune 100 company financial reports found that the number of pages in their 10-K reports grew an average of 16% from fiscal year 2004 to fiscal year 2010.
The recommendations were:
- Provide search and filter capabilities.
- Make searches more user-friendly.
- Provide a data visualization platform.
- Provide LinkedIn-like functionality.
- Enable approximate string matching on the EDGAR website.
- Enhance the use of XBRL data.
- Include a strategic report.
- Stratify risk factors according to non-company-specific and company-specific.
- Stratify risk factors according to impact on performance and probability of occurrence.
- Include industrywide indicators.
- Seek recommendations in an innovative way.
The report is available at tinyurl.com/noc7t7k.