FASB Chair Richard Jones told Thomson Reuters in a March 2022 interview that the Federal Reserve’s proposed U.S. central bank digital currency (CBDC) is a different ball game than nongovernmental cryptocurrencies for financial reporting, and spoke candidly about how standard-setters would likely view both topics.
He also addressed the reporting path for environmental, social, and governance (ESG) matters in U.S. GAAP, as well as provided tentative timelines for when new accounting standards and proposals on other topics will be issued near term.
Jones’s insights come at a time when the FASB is developing its new five-year technical agenda, set amid economic uncertainty nationally and worldwide. The board’s technical agenda gets established by vote of all seven FASB members, upon a majority agreement. The full new agenda will be set by June 30.
The following interview was edited for this publication.
The FASB has a project on its research agenda to potentially develop accounting rules for exchange-traded digital assets and commodities. Are you able to provide more details about the research?
Jones: I added the project on exchange-traded digital assets and commodities to our research agenda in December. As you’ve noted in some of your articles, digital assets can be a fairly broad category. One of the challenges is understanding what we are talking about and what makes sense for us to do in terms of standard setting. Part of what we’re doing on the research project is making sure we have a good understanding of the population of transactions and different potential accounting solutions we could explore. This will allow us to bring to our board information about the different populations that are out there and some potential solutions so we can ask if this is something we’re interested in pursuing—and, if so, which of these paths make the most sense. So that’s kind of the plan here. I see that discussion coming back to our board sometime in the next few months. Ideally, I would like to bring most of the items on our research agenda back in front of our board sometime before mid-year—by the end of June—to give our board members a lot more information with which to make decisions.
Do you have a more specific date on when the board plans to address the topic?
Jones: To be fair, no. I can’t because we need to get a certain amount of the background work done on this. I would emphasize we are looking at digital assets and commodities because some digital assets and some commodities do have certain things in common—they’re actively traded, they’re viewed as exchanges of value between parties, and they’re often exchange traded. Those are a couple things that we’re looking at to see if there’s an overlap beyond digital assets where it would make sense to have one accounting model.
How extensive is the project? a full standard with recognition, measurement, plus disclosure requirements?
Jones: As far as the research project goes, we’re exploring different accounting models. Most accounting models we’re looking at have some disclosure with them, so we may look at using existing disclosure requirements. For example, we have fairly extensive disclosure requirements on fair value and different types of fair value—that’s one area that could be considered. Alternatively, sometimes you have unique assets, and different disclosures might be appropriate. I would say those are the types of things the board would go through to make their judgments and decisions on accounting and/or disclosure before deciding to add the project to the technical agenda.
There appears to be a similar but different issue bubbling up. Specifically, the Federal Reserve Board in January issued a discussion paper for public comment that examines the pros and cons of a potential U.S. central bank digital currency, or CBDC. If a digital currency was implemented as is proposed in the discussion paper, what type of impact would it have on the preparation, audit and use of financial information? It seems like a fundamental change.
Jones: It’s interesting. Obviously, the Federal Reserve will put a lot of thought into it and anything they decide to do. I do think there is a difference between a digital currency issued on the blockchain by nongovernmental entities and a government potentially doing something with its fiat currency. When it comes to the possibility of the Federal Reserve taking action, and if we’re talking about the U.S. dollar—you might say the U.S. dollar is digitized today. I don’t think there are enough bills in circulation to cover the amount of “cash” theoretically outstanding. We would certainly look at it. I would imagine, though, that there would probably be very different factors if there was actually a digital currency U.S. dollar versus ones issued by private entities.
What different factors (could you expand on that point)?
Jones: I’m sure that if the Federal Reserve was rolling something out that was designed to be a measure of the U.S. currency, we would certainly look at any accounting matters in a timely way to make sure that it was appropriately reflected. I would just observe that I think for the U.S. government to issue a digital currency is different from a third party issuing digital currencies.
What would be the implications for financial statement preparers who would have to do the actual accounting work?
Jones: It may be that there would be very few implications. It would be more along the lines of what, if any, questions arise under our current accounting guidance. One thing I could assure you is that if the Federal Reserve decides they are going to issue a digital currency we would certainly be well attuned to it and would work with them to make sure we understood anything we needed to do.
On ESG Matters
Environmental, Social, and Governance (ESG) is another emerging issue that is at the forefront of discussions. The FASB has a research project on ESG-features and regulatory credits. Can you explain what is meant by “ESG-features” as ESG is a broad topic.
Jones: Good question and you’re absolutely right. ESG is extremely broad and people have different definitions of its subsets. That being said, we have seen bonds issued where one interest rate is paid if an environmental target is hit and another rate is paid if it’s not. An example is a bond linked to an individual company’s emissions targets. If they hit the emissions targets, they may pay a lower rate. If they don’t hit them, they may pay a higher rate. We’ve also heard some talk about bonds being issued with different interest rates based upon hiring goals. So, one of the questions that arises is, ‘how do you account for something when there’s two different interest rates based on the performance of an entity?’ In one case, the emissions performance of the entity and the other case the hiring targets of the entity. That’s something we’ve started to see. As I mentioned earlier, when I think about prevalence, I think about not only what’s happening today, but what I think will start happening more. This is one of those areas where, while there may not be a significant amount of activity today, we’re hearing it will likely increase in the future. This is a project to take a look at that—to get information for our board on different accounting issues and potential solutions that we could consider, as a standard setter, related to these type of features—and then to consider whether the board would like to add the project to the technical agenda.
As you are aware, the new International Sustainability Standards Board (ISSB) plans to propose climate-related disclosure rules, and I am aware that the FASB works closely with the ISSB’s sister board the IASB, which develops IFRS standards. How do you envision FASB working with the ISSB on ESG related issues?
Jones: We’re certainly following the formation of the ISSB, and we’re certainly interested to see what proposed standards they’ll issue as they develop. Our focus and our charge are on financial accounting and reporting. To the extent that there’s information they’re gathering that we should be focused on, we’ll certainly be looking out for that. We’re also closely following any proposed SEC rulemaking in this area to understand where the commission is headed as it relates to these matters.
Some investor groups have said that the call for ESG information is an indicator of an outdated accounting model that fails to account for emerging risks and valuation considerations for investors. What are your thoughts about this?
Jones: I think financial accounting and reporting is a key input for investors, and we’ve heard that it’s very important information investors look at as they make decisions. I’m sure investors look at a lot of different information—they may look at quality reports on new products that have been manufactured and how consumers like them or not, they may look at different environmental factors, they may look at different customer trends that are apparent in things other than financial reporting and accounting. I think that investors would be wise to look at lots of different information. I don’t think that means that the financial accounting and reporting information is any less valuable or any less relevant; it just means that investors will look at additional information beyond that as they make their decisions.
New Accounting Standards, Proposals Coming This Spring
As you’re aware, accountants will always want to know about whether there are any there new ASUs or proposed ASUs coming in the second quarter (e.g. this month, or April)?
Jones: These are my own predictions based on where we are today. You’ll see a final standard, hopefully in March or soon thereafter, on portfolio layer method, fair value hedging. You should also see a final standard in March or April on credit losses, troubled debt restructuring and vintage disclosures. I believe in April—but it could slip to May or June—you should see an Invitation to Comment on accounting for government grants—a project on our research agenda. We recently had a board meeting related to reference rate reform, the transition to LIBOR—you’ll see a proposal coming out this spring. We’ve gotten comments back on our exposure draft on fair value measurements of equity securities subject to contractual sale restrictions—that will be coming back to our board soon, so I could envision that being finalized in the next few months. At the beginning of the summer, we plan to publish a report on the agenda consultation process that summarizes the feedback we heard during the process and the disposition of it—for example, whether we added a topic to the research agenda or if it’s something we’re holding for future consideration. Our Emerging Issues Task Force is working on investments in tax credit structures, and I think you may see a proposed ASU sometime this spring. Also this spring, we’ll likely be issuing a final standard on disclosure of supplier finance programs.
This article originally appeared in the March 18, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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