FASB Chair Richard Jones joined the board amid the COVID-19 pandemic about nine months ago, an unprecedented time in the nation and worldwide that is still unfolding. Jones spoke with Thomson Reuters in March 2021 about the board’s priorities and review of revenue, leases, and credit loss rules amid economic uncertainty. He shared his thoughts about whether technology will impact the way the board sets standards and provided the most current view of the board’s work on segment reporting, goodwill, government assistance, debt, and a slew of other topics. Jones said the chairmanship role isn’t what he expected. His advice for someone taking the helm of a major organization is to “do as much as you can, as quickly as you can, to connect with stakeholders.” This article is an edited version of the interview.
Thomson Reuters: What are the positive and negative surprises of the role so far?
Jones: What surprised me, very pleasantly, was the willingness of our stakeholders to engage with us. Engagement is a critical part of our mission—we need that external feedback to function and set standards. On the negative side, I would say I might have hoped we would be out of the pandemic a little faster than we are.
Thomson Reuters: What are the board’s agenda priorities this year?
Jones: One thing we’ve tried to convey is that we do understand the environment in which our stakeholders are operating. We recognize they have a lot of challenges. We’ve factored that into our standard-setting process as we prioritize what projects to complete. We also considered that when setting comment periods for our projects to ensure we get appropriate input, while recognizing that we have to prioritize some items to keep financial reporting functioning at a high level.
When it comes to our priorities for the year, I’d break them up into three categories: our existing agenda, our post implementation review, and our agenda outreach. As you probably know, our existing agenda is fairly extensive. In the last seven months we’ve brought about 75 percent of our agenda projects back to the board to focus on setting an achievable path to standard setting. In other words, we’re making sure our board agrees on the direction we’re headed and that we’re on a path to successfully finalize those standards. My goal is to get through the other 25 percent of our projects sometime in the next several months.
The post-implementation review (PIR) process is one of our board priorities. That’s because the success of the three standards currently under PIR review—revenue recognition, leases, and credit losses—is extremely important. They’re large standards, and it’s rare that such large standards are one and done. As part of the PIR process, we’re focused on understanding stakeholder feedback on these standards from those who have adopted or are in the process of adopting them. This will help us see if there’s any fine tuning we need to do to make those standards more successful. The PIR process is a multiyear process. We are still in its initial phases.
Our third priority is the agenda outreach project I announced in December. We’ve already started that process, and it will continue be a significant focus for us throughout the year.
Thomson Reuters: In light of the pandemic and that for many companies (especially private companies) the standards are not yet effective, is it still realistic to do a PIR to determine whether a standard worked as intended especially amid such uncertainty and change?
Jones: First and foremost, the post-implementation review process is a multiyear process. We are still in its initial phases. Second, when we set effective dates for these standards—for large public companies adopting in the first phase, followed by smaller public and private companies and organizations in the second phase—we expect to learn from the first phase of adoption how we need to fine tune the standard before the second phase. The PIR process is designed to help us understand what areas may need our focus.
Finally, I’d point out that all our standards are subject to continuous improvement. It is pretty typical for a large significant standard to require some fine tuning after it’s been issued. We’re using the PIR process to help us flesh out areas that need adjustment. And we’re doing it in a very transparent manner, which is a necessary part of standard setting. For example, at our December PIR meeting, we had a public read out of the input we received. Do I wish we were doing this in a more boring environment? Absolutely. That said, I still think it’s just as important to do now.
Technology, Cryptocurrencies
Thomson Reuters: Shifting gears a bit to other topics trending in the marketplace. Do the technological strides and the move toward Artificial Intelligence (AI) and other software developments impact the way the board sets standards now, or will they in the near future?
Jones: Great question. I think there is no doubt that investors can handle and process more information today than they could years ago. And I think that we will see a drive from investors for additional, more disaggregated information, a trend that will be reflected in some of the agenda requests we get. That said, there’s also a cost to providing that information—and we need to consider that as part of our cost-benefit evaluation.
Thomson Reuters: Recent developments with cryptocurrencies—specifically Tesla’s CEO Elon Musk said the company bought $1.15 billion of Bitcoin and is considering accepting digital currencies as payment. If more large companies follow Tesla’s lead to accept digital currencies as payment (which is possible), what are the financial reporting implications for accountants? Will this require changes to the conceptual framework and related accounting rules?
Jones: Digital assets have been in the news quite a bit. I believe we received three agenda requests over the last several years to do standard-setting in the area of digital assets—not necessarily one main digital asset, but digital assets overall. To date, when we’ve looked at this issue, we haven’t seen diversity in practice, nor have we seen it become a widespread material matter. That said, if that changes over time, we would consider revisiting this area. Is it that something that one day may end up on our agenda? It’s possible.
In the meantime, I would also note that the AICPA has put out a paper to help people with the accounting for digital assets that I think has been helpful.
Government Assistance, Debt, Goodwill, Segment Reporting
Thomson Reuters: Let’s talk about some of the projects accounting professionals have been asking about. The project on government assistance appears to have stalled. What are the plans for this topic? Is it an area you would consider for convergence with the IASB, in light of International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, being known and used widely by companies?
Jones: That’s a good question. When that project was added to the agenda, the board at the time decided to pursue it as a disclosure project, versus an accounting and disclosure project. Consequently, they’ve been focused only on disclosures. I do plan to get that project back before the board in the near future to decide if we should continue to go in that direction. I think it fair for us to ask if there should be standard setting related to accounting for government grants, not simply disclosure.
You mentioned IAS 20. I know that the IASB has had a project on its agenda for quite some time to revisit the accounting of government grants under IAS 20. While that project has been dormant, it would provide us an opportunity to understand where they are headed.
We have great communication with the IASB. We work on projects of common interest and we share information. It would obviously be very helpful to us in understanding if they have plans in that area, particularly as we have an interest in dealing with accounting for government grants beyond disclosure.
Thomson Reuters: When will a final standard on the classification of debt be issued? This project seemed very close to completion a year or two ago, but no final standard has yet been issued.
Jones: The board issued a revised proposal in the fall of 2019, for which we received comment letter feedback. Our plan is to bring that back to the board in few months and to set a path forward on that standard as well.
Thomson Reuters: The board is working to revise goodwill accounting rules, and some companies are interested in convergence. How does the Board plan to consider IASB viewpoints when deciding whether to reinstate goodwill amortization for all entities, noting that at the moment, a slight majority of IASB members do not want to reintroduce goodwill amortization?
Jones: When the IASB does outreach related to goodwill, they share that information with us, and vice versa. As you’re aware, we had a joint meeting with the IASB last fall to discuss where we were on our respective goodwill projects. This meeting allowed us to solicit their views and enabled members of each board to hear each other’s perspectives. At the end of the day, when developing GAAP, we do consider the consequences of being aligned or diverged with international standards as part of our cost-benefit analysis.
Thomson Reuters: Segment reporting is another major project on the board’s agenda. What will change for public companies in terms of disclosures, and how will that be useful to investors?
Jones: We’re in the preliminary phases of the segments project. We’re aiming to issue an exposure draft toward the end of this year or the beginning of next year. We’re pursuing a consistent ‘chief operating decision maker approach’ which is the ‘through the eyes of management’ approach. We’re looking at the traditional disclosure of significant expenses that are reviewed by the chief operating decision maker as well as possibly providing users with some additional information about how expenses are allocated between segments. I would say we have several meetings to go before we approach an exposure draft. It’s a project we’ve heard is very important to investors, and our focus is to help them better understand some of that expense information.
Private Companies, Politics, Taxes
Thomson Reuters: While private company accountants and practitioners have said they appreciate many of the accommodations U.S. GAAP provides (as a result of the Private Company Council’s activities or otherwise), how has the board considered the costs of providing these accommodations to (a) financial statement users that invest in both private and public companies in the same industry and (b) audit firms that audit both public and private companies, who need to be well-versed in both private and public company GAAP?
Jones: We have a private company decision-making framework that we follow. When we consider whether or not to provide accounting alternatives for private companies, we factor in both the benefits as well as the costs. Obviously there is a cost when you have overlapping users who would have to look at two different accounting outcomes. There could also be education costs if you have auditors who have to understand two different accounting models. We weigh all those factors along with the benefits of providing different accounting treatment for private and public companies.
Thomson Reuters: Any project or topic you’d like to highlight?
Jones: I want to say it’s an honor to step into this role, even in these challenging times. I really believe independent standard-setting is a great asset and a great privilege. It’s an asset for all of us because it produces the best standards. It’s a privilege because the FASB must continually earn our independence. I look forward to working with the Board to do that.
Thomson Reuters: Speaking of independent standard-setting, recently the board came under pressure from U.S. legislators regarding the current expected credit loss (CECL) standard. Last year there was heavy lobbying, which resulted in legislative action that deferred the CECL standard under the CARES Act for banks and others. Has the board come under more political pressure regarding the CECL standard or other rules?
Jones: Not that I’m aware of—not recently. Obviously, different actions have occurred in recent years, but we remain focused on our mission—specifically, continuously earning the privilege to set U.S. GAAP by developing high-quality accounting standards.
Thomson Reuters: The change from Republican Donald Trump’s Administration to Democrat Joseph Biden’s could bring new tax laws (some have speculated). Are there any changes the board has gotten wind of that will require Topic 740, Income Taxes, to be revised?
Jones: If new tax legislation is passed, in the U.S. or abroad, that has accounting and financial reporting effects, we have a standard that’s designed to deal with changes in tax law. It generally does a pretty good job. Occasionally there are changes in tax law that could use some interpretation. When and if that occurs, we will be ready to take it up from a standard setting perspective.
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