Standard setters focus on costs vs. benefits, 'big three' projects

In these Q&As, board chairs Richard Jones of FASB and Joel Black of GASB discuss what’s on the horizon for CPAs.
By Ken Tysiac

Standard setters focus on costs vs. benefits, 'big three' projects
Image by matdesign24/iStock

Leadership changed in two influential standard-setting bodies in July when Richard Jones, CPA, took over for Russell Golden, CPA, as FASB's chair and Joel Black, CPA, succeeded David Vaudt, CPA, as chair of GASB. Both new chairs are CPAs with extensive public accounting experience. Jones spent more than 30 years with EY, serving as the firm's chief accounting and national office leader; Black was partner in charge of the audit practice at Mauldin & Jenkins.

Jones is emphasizing the importance of balancing costs and benefits in standard setting, while Black is leading GASB's continuing work on its "big three" projects related to changing its financial reporting framework, addressing revenue and expense recognition, and improving its disclosure framework.

In these abridged and edited Q&As, the new chairs discuss their visions for future standard setting. The full versions of the Q&As are available here (Jones) and here (Black).


What's your general philosophy on the role of standard setters and making the financial reporting environment a better place?

Jones: I truly value independent standard setting. I value it because I think it's a great asset for our economy. But I think we have to continuously earn the right to be an independent standard setter. And part of that is being careful in the standards we set and making sure they provide relevant information to users while factoring in the cost associated with those standards. You're going to keep hearing me talk about the importance of the cost/benefit analysis. It's a very challenging analysis, but I think it's one we have to be committed to do and always keep in perspective.

One of the things I have noticed since joining the FASB, and also when I was a member of FASAC [the Financial Accounting Standards Advisory Council], is that when you bring preparers and users together, you often find they can agree on a solution. When there's some direct interchange between them, and an understanding of what information users are looking for, preparers can ask, "How will you use it? Maybe there's some other information that would be more relevant or something we're already giving you that you could focus on." I think that's a great way to come up with a solution to a problem.

On the topic of independent standard setting, Congress in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, delayed the implementation date of FASB's credit losses standard. Do you have thoughts on the precedent this sets and the challenge to independence that this situation brought about?

Jones: I do think independent standard setting is a great asset to our economy and for our economic system. That said, I certainly understand that we're in unusual times, and I respect our government and its right to act to deal with certain challenges. I might have preferred that we address it through our process, but I respect their authority and ability to take action for our country.

Many of the less high-profile standards that have been issued over the past few years are intended to simplify financial reporting. Is it your goal to continue to do that?

Jones: Absolutely. When we talk about removing costs and complexity from standard setting, it's important to focus on removing the unnecessary complexity. If we have a complex transaction, often the accounting for that will be challenging. That said, when we have unnecessary complexity in the system, there's a cost to preparers and also to users. The cost to preparers is having to comply with a very complex standard. The cost to users is that that information can be challenging to convey and may also not be the most relevant. It may be conveying a level of precision that's really inconsistent with what's underlying those calculations.

What are your thoughts on the state of preparing and auditing in general right now?

Jones: We certainly recognize that our stakeholders are operating in challenging times. There's no doubt. And we have three significant standards [revenue recognition, lease accounting, and credit losses] that were adopted or are in the process of being adopted by our stakeholders. Significant standards are rarely one and done. In other words, we often get input about those standards, and we seek to make improvements to them. But recognizing the environment we're in, we're first focused on urgent and critical issues.

Second, we're focused on improving standards that are not yet effective. For private companies that haven't yet adopted some of these standards, we've committed to learn from the public company adoption and make changes if we think there's a need to ease costs or to improve the information in those standards.

Third, when it comes to our pace of standard setting, we're being very careful to ensure our exposure periods give stakeholders enough time to provide us with feedback that's essential for quality standards. And when we issue new standards, we're being very careful to set implementation dates that give them enough time to adopt those standards in a quality manner.

Is there anything on FASB's agenda right now that you can say is very important to you?

Jones: I've been doing a lot of stakeholder outreach, which is a top priority. One of the benefits of people using different mediums to communicate during this pandemic is that I have been able to do an extensive amount of stakeholder outreach, which is terrific. Ordinarily I'd have to do a lot of traveling to meet with people, and time spent on the road takes away from the time available to meet with other stakeholders. Another thing I'm particularly focused on now is the post-implementation review of our major standards. Revenue recognition, leases, and credit losses are three major standards companies have either adopted or are in the process of adopting. We are very committed to looking at them as part of our quality control phase, our post-implementation phase, to understand if they're working the way we intended them to, to see if the benefits are there, and to ensure they don't introduce any unnecessary cost or complexity into the system.

What do you think of the way private company accounting has worked over the last several years with the work of the Private Company Council (PCC), and where do you see it going from here?Jones: I've long been an admirer of the PCC. I think they've done a great job identifying issues relevant to both private and public companies. I think there's been a great partnership between the PCC and the FASB. I've been very impressed with the members of the PCC that I've gotten a chance to work with since joining the FASB. I think they have an excellent process, and they do an impressive job of outreach with their stakeholders to understand what issues they are facing so we can jointly work on them.

What have I not asked you that you would like to say?

Jones: One question I often get is about the case to change accounting standards. I think there are three things to consider when evaluating whether you should make a change. The first is whether that change would provide users with better information that would affect their decisions. The second is whether the change would remove cost and complexity. And the third is whether the change would clarify or bring consistency within GAAP itself. As we explore changing accounting, I think it's important to understand those three buckets and where we're falling, because that will drive whether or not we decide to change a particular item.

FASB Chairman Richard Jones and GASB Chairman Joel Black
Richard Jones (at left) became FASB’s new chair on July 1. Among his goals as chair are removing unnecessary complexity from GAAP and making sure standards are working as intended. Joel Black (at right) became GASB chair on July 1. Among his goals as chair is to pursue the “big three” projects — the financial reporting model; revenue and expense recognition; and the disclosure framework.


The entire financial reporting model for state and local governments would change under a proposal that was just issued, with the application of a short-term financial resources measurement focus replacing the existing current financial resources measurement focus. The accrual basis of accounting would underpin the model. What effect would this have on government accounting and financial statements?

Black: For the most part, the board's financial reporting model project will make targeted improvements to the overall financial reporting model of state and local governments. But the one particular aspect of the new proposed standard that you mentioned, changing to a short-term financial resources measurement focus and away from the current financial resources measurement focus and modified accrual, will bring more consistency to the governmental financial statements. The current financial resources measurement focus is really a series of accounting conventions that, if you didn't grow up with them over the years, can be hard to learn for new government accountants. It can also sometimes lead to inconsistent reporting of similar transactions. I believe the new, proposed measurement focus and basis of accounting will provide more consistency. It will be easier to understand how every transaction runs through the government and governmental funds, and it will also provide more consistency in reporting from government to government.

GASB delayed certain implementation requirements as a result of the pandemic. Is there anything else the board can do, related to the pandemic, to improve financial reporting without stressing out the system?

Black: We have also recently issued a technical bulletin on the accounting for the CARES Act funding. We believe that the technical bulletin is really helpful to both preparers and auditors because it answers common questions we were getting and it provides easy access to those answers. We also, on our website, have what we call the emergency toolbox, which is a listing of accounting issues that governments may not routinely encounter, but in the current situation, may encounter for the first time or first time in many years. The toolbox provides references to the appropriate guidance for those transactions, and I think that's a very useful tool as well. We do continue to have dialogue with all of our stakeholders, government financial reporting preparers, auditors, and users about their challenges and what they're facing, so that we can determine if there is additional guidance we can provide that would be helpful. Or whether there is potentially any future relief we can provide that would be helpful as well to all those different constituency groups.

Do you have ideas on what future standard-setting issues are most important for the board?

Black: We have what we call the "big three" projects — the financial reporting model we talked about earlier; the revenue and expense recognition project; and the disclosure framework project. They are all very significant projects that are in various stages of progress. Two of them, the financial reporting model and revenue and expense recognition, have significant due process documents out right now — an exposure draft for the financial reporting model and a preliminary views document on revenue and expense recognition. We look forward to getting feedback on those documents and future deliberations. In addition to those big three, one of the more significant topics we are beginning to undertake is revisiting capital assets, in particular infrastructure. This will be an important topic for us to consider for potentially improving how those assets are accounted for and presented in financial reports. I look forward to what our research efforts uncover, and I think the board is very interested in that topic.

You talked earlier about the financial reporting model project. Can you summarize the other two of the big three, the revenue and expense recognition and then the disclosure framework?

Black: The revenue and expense recognition project is another one that will allow for more consistency. That seems to be a common theme throughout the big three is to allow for more consistent, easy application. Many of the challenges that governments and government accountants face with revenue and expense recognition are being revisited. Based on the preliminary views, I think there will be a significant improvement in how, from government to government, revenues and expenses are recognized that will improve consistency. On the footnote disclosures project, there is a significant amount of disclosures in the statements right now, and that bears revisiting. The first step in revisiting those footnote disclosures was the board revisiting the concepts statement related to what should be disclosed in government financial reports. And I think that the exposure draft that we are redeliberating right now is an improvement to really lay out, for future boards, what footnote disclosures need to have in order to be required in government financial reports.

Do you have any specific goals as you begin your tenure?

Black: My main goal is for us, as an organization, to evolve and make necessary changes. As state and local governments change and evolve related to their financial reporting, and as users evolve in how they consume government financial reports, I want us as a board and an organization to be in a good position to evolve to our appropriate place in that process. I routinely use a Bill Gates quote, where he said that we often overestimate how much change will occur in the next two years but underestimate how much change will occur in the next 10 years — don't be lulled into inaction. My goal is for us not to be inactive, but to be very observant and to have dialogue with all the different stakeholders in government financial reporting so that we're changing and evolving as the world changes and evolves, so that we have our appropriate place as a standard setter for government financial reporting.

About the author

Ken Tysiac is the JofA's editorial director. To comment on this article or to suggest an idea for another article, contact him at

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