Five key issues FASB may change in financial reporting

FASB is preparing to consider foundational changes that could significantly alter financial reporting in the future as well as standards improvements that will reduce complexity, board Chairman Russell Golden said Thursday.

Here are five issues that will be studied and debated by FASB in the coming years under active projects, as described by Golden in a speech at the 13th annual Financial Reporting Conference in New York City:

Measurement. FASB will debate an overarching measurement philosophy as part of its conceptual framework project because, Golden said, a conceptual philosophy of measurement does not exist in current standards. “That will be very difficult,” Golden said. “That will be very challenging. And you will see passionate views on various sides of the aisle. But it’s something that I hope we can achieve and create a foundation for future boards.”

Presentation. This discussion also will be part of the conceptual framework project, and Golden said the board needs to consider whether there needs to be improvement in the performance statement and, particularly, the income statement. “Would it be better to classify the income statement between recurring and nonrecurring activities?” Golden said. “Or between operating activities and nonoperating? Or between some form of operating and recurring?” Disaggregation may give investors a better understanding of the difference between recurring and nonrecurring items and may reduce the desire for disclosure of some non-GAAP measures, Golden said. He said some improvements to the statement of cash flows also could be made to conform with changes to the performance statement.

Disclosures. Under current requirements, there may be too many disclosures related to fair value and pensions, and too few disclosures related to income taxes, Golden said. Under FASB’s disclosure framework project, the board’s staff is conducting field-testing to determine whether disclosures can be structured to be more effective in relation to those three topics and others.

Liabilities and equity. A high number of restatements are related to liabilities and equity, Golden said. “I think the reason is, it is not intuitive,” Golden said. “You have slightly different economics that can have substantial changes in the measurement.”

Hedge accounting. FASB will consider whether standards can be changed so disclosures will more appropriately portray when management is hedging as an attempt to manage risk, Golden said. The International Accounting Standards Board recently released a discussion paper seeking feedback on a possible new approach to financial reporting of hedging. Golden said better disclosures could inform financial statement users when management is entering into a risk mitigation strategy, what risks are being mitigated through hedging, and what new risks the hedging might bring. “Has risk been mitigated, or changed to something else?” Golden said.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.