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FASB Chair Stresses Importance of Making a Case for Change Prior to Tinkering with Rules

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Denise Lugo

FASB Chairman Richard Jones on November 4, 2020, signaled the board would focus on first making a case for change before tinkering with accounting standards, including conveying why a move is necessary and who benefits from it.

“Accounting standards are sticky, meaning once they’re in place you really have to make a case for change,” Jones told attendees of Financial Executives International’s virtual corporate financial reporting insights conference titled “Leading Through Crisis to Opportunity.”

“I think that’s key,” said Jones. “Is there a clear case; is there a basis for making a GAAP change – and I think part of that is making sure that when we decide there is a clear case for change, making sure that we can communicate that – who will benefit from it; what will those benefits be and the more specific we can be the better,” he said.

Jones said three reasons why accounting standards should be changed are: to provide financial statement users with better information; when there is unnecessary cost and complexity in a standard; maintaining the codification – when there are similar transactions with different accounting that add unnecessary complexity.

His remarks come a week after the FASB was criticized by some financial statement users who said the board has not been sufficiently attentive to the needs of investors.(See Group Says Accounting Standard-Setter is Ignoring Investor Views in the November 2, 2020, edition of Accounting & Compliance Alert.)

His insights were given in response to questions posed by Alphabet Inc. Vice President and Chief Accountant Amie Theuner who moderated the discussion.

Asked by Thomson Reuters in a press briefing following the discussions about the concerns the investors raised, Jones said the board was open to listening to any issues the group has. “I guess from my perspective, our doors are open, our mail boxes are open, our phones are open. If investors have concerns from a standard-setting perspective, if they have agenda requests from a standard-setting perspective we’re very happy to hear them and understand those,” he said.

The board has two investor representatives and an academic who is another user of financial statements. Eight out of 17 of the board’s trustees are investors, the board has a dedicated group designed to do outreach with investors, has an investment advisory committee, and also does investor outreach through various advisory bodies.

During his responses to Theuner’s earlier questions, Jones also stressed that a priority of the FASB would be to listen to its constituents.

He said more changes would likely come during his tenure, pointing to the 24 projects on the board’s standard-setting agenda, and the more than 20 agenda requests that came in. Among projects he highlighted were segment reporting, identifiable intangible assets and subsequent accounting for goodwill, and the post-implementation review (PIR) of credit loss, leases, and revenue recognition rules.

In a separate panel, FASB Technical Director Hillary Salo said the board will hold an education session on goodwill accounting rules next week and plans to also formally discuss the topic on November 18. The board will deliberate on goodwill amortization methods – whether companies should use a straight line or other model, among other issues, she said.

Related to PIR topics, Salo said staff members plan to bring a report to the board in December related to the “good, bad, and ugly” of the current expected credit loss (CECL) standard and will ask the board for direction in relation to standard setting on those matters.

On the horizon, the board plans to issue a final accounting standard on a proposed delay on the effective date of long-term insurance contracts and to issue a proposal on recognition and measurement of revenue contracts with customers under Topic 805, Business Combinations, according to the discussions.

The board has also allocated resources to technical inquiries and staff question and answers (Q&As) for leases, interest income, fair value, hedging, collaborating with industry on Small Business Administration (SBA) loans, and disclosure of government assistance.

 

This article originally appeared in the November 5, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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