Companies can now state their case for what accounting topics the FASB should add to its technical agenda, a process it undertakes every five years, the board announced on June 24, 2021.
The FASB on June 24, 2021, published Invitation-to-Comment (ITC) No. 2021-004, Agenda Consultation, with a Sept. 22, public comment deadline.
Overall, the ITC asked the public to weigh in on four issues–whether to require “greater disaggregation of financial reporting information,” whether there are “emerging transactions to reduce diversity in practice and retain the relevancy of GAAP,” whether there are “specific areas of existing GAAP to reduce unnecessary complexity,” and “enhancing certain FASB standard-setting processes.”
Among questions posed are which topics in the ITC should be a top priority for the board, the reason the change is needed, how it should be addressed, and with what urgency.
The ITC gives a summary of input and suggestions the board received to date and includes questions to help guide its agenda.
22 accounting topics flagged
A major theme in the ITC is the “general need for greater disaggregation and granularity of a range of financial reporting information—in the income statement, in the statement of cash flows, or in the notes to financial statements,” according to a text of the document. This information is needed to better understand the performance of the company and assess future operating results, cash flows and risks, financial statement users told the board.
Eleven topics were mentioned by users as needing more disaggregation, including: income tax information to better assess global tax risk; effects of foreign currencies on financial statement line items; effects of business combinations to compare a company pre- and post-acquisition; effects of environmental, social, and governance (ESG) matters on financial statement line items; operating results, cash flows, and balance sheet information of partially owned subsidiaries and equity method investments; and, the breakdown of cost of sales and selling, general, and administrative (SG&A) expense to understand a company’s cost structure by nature and/or further by function.
The accounting profession also said the board needs to maintain and improve the relevance of GAAP by addressing financial reporting for several emerging areas, including six topics: the definition of a derivative; digital assets; ESG-related transactions such as renewable energy credits and emissions allowances; financial key performance indicators or non-GAAP metrics; intangible assets including software; and, recognition and measurement of government grants for business entities.
The ITC highlights areas of GAAP that should be revisited to reduce unnecessary cost and complexity for companies. Five areas were flagged: balance sheet classification; consolidation; debt modifications; distinguishing liabilities from equity; materiality considerations for disclosures.
Unnecessary complexity and the cost that accompanies it should be minimized “because it affects investors and preparers,” the paper explains.
Lastly, companies suggested the board enhance: the understandability and navigability of the codification; develop a transparent and thorough cost-benefit analysis framework including using innovative ways to perform outreach; establish a new interpretive process to respond to questions that do not require amendments to the codification but that would be published and retrievable; standardize language used to describe transition requirements of new guidance.
Not a willy-nilly process
As it stands, the FASB’s technical agenda includes 25 standard-setting projects, six research projects, three post-implementation review projects, and a project on updates to the FASB’s nonauthoritative Conceptual Framework.
FASB projects are focused on its mission to “establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.”
At least a majority of the board must approve any projects that are added to or removed from the technical agenda.
To add a project to its agenda, the board considers whether “there is an identifiable and sufficiently pervasive need to improve GAAP,” whether “there are technically feasible solutions and the perceived benefits of those solutions are likely to justify the expected costs of change,” and whether “the issue has an identifiable scope,” the ITC explains.
It decides on a change based on whether it would provide investors with better, more useful information that will directly influence their decisions and behavior, to improve the codification, and to remove unnecessary cost and complexity from the system.
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