FASB working to balance desires of investors and preparers

By Ken Tysiac

The age-old tension between investors who use financial statements and the companies that prepare them surfaced in responses to FASB's recent agenda consultation.

When FASB requested comments as it looks to map its future activities, the provision of more disaggregated disclosures was one area presented for discussion.

"It appears that most investors and other allocators of capital favor more disaggregation of financial information. And preparers don't," FASB Chair Richard Jones said Tuesday at the AICPA & CIMA Conference on Current SEC and PCAOB Developments.

Preparers oppose further disaggregation because it's costly to produce, Jones said. He said FASB will find a balance between those views by:

  • Identifying projects that fulfill the board's mission that can be successfully completed with the resources at hand;
  • Identifying areas where there is a sufficiently pervasive need to improve GAAP; and
  • Seeking solutions with benefits likely to justify the expected costs.

"If the holy grail for an investor is a thousand items in the income statement, we're not going to achieve that," Jones said.

At the same time, Jones said that while FASB is seeking to remove unnecessary cost and complexity from the financial reporting system, that objective is not necessarily focused on the cost to prepare financial statements.

He said that unnecessary cost and complexity affects all stakeholders, including investors.

"Our standards are judged by the quality of information they provide investors and the cost to investors and preparers, which, by the way, are costs borne by current investors alike," he said.

FASB received 522 responses to its agenda consultation, according to FASB Technical Director Hillary Salo. Common themes included:

  • Investors seeking disaggregated information on the fixed versus variable nature and recurring versus nonrecurring nature of a company's income and expenses; and the jurisdictions or geographies a company operates in.
  • Desire for FASB to keep GAAP updated and relevant on emerging areas such as accounting for digital assets; accounting for green items such as financing linked to environmental, social, and governance (ESG) metrics; alternative tax structures; recognition of government grants; and accounting for software.
  • Concern about the cost and complexity of FASB's consolidation guidance.
  • Desire for improving the standards for distinguishing liabilities from equity.
  • Desire for enhancement of accessibility to the Accounting Standards Codification and FASB's interpretive guidance.

The board plans to analyze the feedback from the agenda consultation during the first half of next year and begin to make changes based on the comments.

IASB update

IASB Chair Andreas Barckow said at the conference that the board's strategic priorities include:

  • Sustainability-related financial disclosures: The November announcement of the formation of the International Sustainability Standards Board by the IFRS Foundation is a big step toward consistent sustainability accounting. "Climate change risk is an issue for today and not for tomorrow," Barckow said. "… Sustainability is going to become a part of your day job if it's not already."
  • Key projects: These include primary financial statements, post-implementation reviews, goodwill impairment, and an agenda consultation.
  • Convergence: Barckow said the ongoing cooperation between the IASB and FASB benefits both boards and their stakeholders.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.

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