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 Tuesday 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.”
Divergence on leases
The focus on reducing complexity was a factor that led FASB to make a difficult decision to choose a different path from the International Accounting Standards Board (IASB) in the boards’ ongoing project on financial reporting for leases, Golden said.
The boards agree that leases belong on the balance sheet, but the expense model the IASB favors for lessees would effectively treat all leases in the same manner, front-loading expenses by the lessee for all lease contracts. The model FASB favors for lessees would front-load expenses only for capital leases, while expensing operating leases on a straight-line basis.
According to Golden, FASB found that the IASB’s model would cause more organizations to make changes in internal controls and systems—which would add to complexity and costs. FASB believes its approach more accurately reflects the economics of leases and would be more operational for U.S. organizations.
This has led to the boards to move forward with different approaches to expensing by lessees.
“I believe the FASB occasionally has been unable to agree with the IASB because, while the FASB will understand, balance, and consider the international perspective, we ultimately must do what we individually believe is best for those who participate in U.S. capital markets and other capital markets around the world that use or reference GAAP,” Golden said.
Golden’s assessment comes at a time when the debate over international standards’ role in U.S. capital markets has been reinvigorated. SEC Chairman Mary Jo White said during a speech in May that considering whether to further incorporate IFRS into the U.S. financial reporting system is a priority for her, leading to speculation that the SEC is at least considering giving U.S. public companies an option to use IFRS for financial reporting.
Convergence important to FASB
Achieving global agreement in accounting standards also remains important to FASB, Golden said Tuesday. He proudly touted the new revenue recognition standard—which is considered the crowning achievement of the convergence effort—as an example of how both U.S. GAAP and IFRS can be improved and standards can become global when the standard setters work together.
And Golden said FASB will continue working with the IASB to improve IFRS and will participate in a new, collaborative process with other standard setters to support the development of standards that will best meet the needs of investors around the world.
But ultimately, Golden said, FASB’s mission is to serve capital market participants who use U.S. GAAP. And where it’s possible, that mission includes taking away unnecessary complexity and costs.
“In the course of the work with the PCC, it has become clear that many issues that have drawn attention—and concern—of the private company stakeholders also are of great interest to public company stakeholders,” Golden said. “As a result, the PCC process has become the springboard for our effort to simplify accounting for all companies.”
Ken Tysiac (
) is a JofA editorial director.