Insight

FASB focuses on stakeholder-centric standard-setting

Chair Richard Jones addressed the FASB’s agenda and ‘achievable standard-setting’ at the 2023 AICPA & CIMA Conference.


On Monday, SEC Chief Accountant Paul Munter reiterated the importance of ‘achievable standard-setting’ for the benefit of all stakeholders. During the FASB’s presentation at the Conference on Tuesday, FASB Chair Richard Jones emphasized the importance of feedback the FASB received from its recent agenda consultation. Stressing that accounting standards must be both useful and relevant to investors, operable for preparers and clear for auditors, Jones asked for continued engagement by all three stakeholder groups.  

“Practically, ‘achievable standard-setting’ means standard-setting projects for which the foreseeable solutions would (1) improve the financial reporting information provided to investors, (2) likely garner the support of most of the Board members and (3) not impose costs on financial statement preparers that exceed expected benefits for investors.”

— Kimber Bascom, KPMG Deputy Chief Accountant and EITF member

 

A key theme heard from investors was disaggregation – and the FASB is responding to that call. Once the FASB concludes its ongoing projects on disaggregation, we expect to see more narrowly scoped projects from the FASB. To this end, Jones noted the FASB is likely to initiate another agenda consultation in 2024.


Disaggregation projects either complete or drawing to a close

Jones and Hillary Salo, FASB Technical Director, discussed the three disaggregation projects – each designed to provide more detailed information for investors – which have been on the FASB’s technical agenda for a while but are finally coming to an end.  

Segment reporting ASU issued

Issued at the end of November, ASU 2023-07 (improvements to segment reporting) requires public entities to disclose the significant expense categories in each reportable segment in addition to all segment disclosures currently required. Companies also have the ability to report multiple measures of segment profit or loss.

Jones mentioned that the ASU’s effective date is soon – fiscal years beginning after December 15, 2023. However, most registrants should already have the necessary information to implement the new requirements. The possible exception is single reportable segment entities, which must start complying with ASC 280 in its entirety for the first time as of the ASU’s effective date.

Read more about the amendments in our Defining Issues, FASB issues ASU requiring new segment disclosures.

Disaggregation of income statement expenses

The proposed amendments would require public business entities (PBEs) to disaggregate five specified expense categories within each relevant caption in the income statement, with further disaggregation required for one of the categories – inventory and manufacturing expense. PBEs would also disclose the amount of their selling expenses.  

The Board is deliberating the proposed ASU in light of comments received and will continue its outreach at a public roundtable meeting on December 13, 2023. This project is particularly significant not only for the amount of new information it would yield but also for the expected cost of compliance.

Jones noted that greater granularity through disaggregation of income statement information is a top priority for investors. Read more about the project in our Defining Issues, FASB proposes income statement disaggregation disclosures

Income tax disclosures

The FASB issued an exposure draft in March 2023 and anticipates issuing the final standard by the end of December. The exposure draft proposed significantly expanding what is disclosed and how the information is disaggregated – giving investors a detailed look at a company’s global tax obligations. 

  • Public business entities would disclose a tabular effective tax rate reconciliation, broken out into specific categories with certain reconciling items above a 5% threshold, and further broken out by nature and/or jurisdiction.
  • Other entities would disclose the nature and effect of significant differences between the statutory tax rate and the effective tax rate by specific categories of reconciling items, including individual jurisdictions.
  • All entities would disclose income taxes paid (net of refunds received) – broken out between federal, state and foreign – as well as net amounts paid to an individual jurisdiction that exceed 5% of the total.

Salo noted this project is a top priority because current tax disclosures are “a bit of a blind spot,” meaning they are challenging to understand. Read more about the project in our Defining Issues, FASB proposes improvements to income tax disclosures.

 

Narrow-scope crypto assets project headed for fair value measurement

Nellie Debbeler,  FASB Deputy Technical Director, noted that in the past year the FASB has issued a proposed ASU on crypto assets, redeliberated that proposal based on the 83 comment letters and other feedback received, and expects to issue a final ASU by the end of December. The final ASU will require commercial companies and not-for-profit entities holding crypto assets like bitcoin and ether to measure those assets at fair value, with changes in fair value recorded in net income. The final ASU will also require significant new disclosures about crypto asset holdings.

Debbeler highlighted that the scope of this project is limited to crypto assets meeting six scoping criteria (including that they meet the Master Glossary’s definition of an intangible asset, are fungible, and do not give the holder rights to other goods, services or assets). That scope will exclude crypto assets like non-fungible tokens – which in addition to being non-fungible generally give the holder rights to other goods, services or assets – and crypto assets that meet the definition of a financial asset (e.g. certain ‘stablecoins’).

The final ASU will not address all aspects of the accounting for crypto assets in its scope; for example, it will not address the initial recognition, initial measurement or derecognition of those assets. Many commentors on the proposed ASU – including KPMG – suggested that the FASB tackle these issues, particularly derecognition, in a near-term future project.

Read more about the project in our web article here.

Narrow-scope ESG-related projects in the early stages

The FASB currently has two ESG-related projects on its technical agenda, both of which are in the initial deliberations stage. Both projects currently exclude income tax credits from their scope, but are nonetheless eagerly anticipated to help resolve ESG ‘accounting’ issues. A further ESG-related project (definition of a derivative) remains on the FASB’s research agenda.

Environmental credit programs

After adding the project to its technical agenda, the FASB met in October 2023 to refine its project scope and discuss recognition and measurement criteria. The FASB has tentatively taken a position on several issues, including:

  • Scope. Environmental credits would include credits that are enforceable and transferable, are acquired, granted by a regulatory agency or designee or internally generated, lack physical substance and do not meet the definition of financial assets under US GAAP, and are represented to prevent, control, reduce, or remove emissions or other pollution.
  • Recognition. A credit would be recognized as an asset (at cost) when it is probable that it will be used to settle an environmental credit obligation, sold or traded.

Read more about the project in our web article here.

Government grants

ASU 2021-10 created disclosure requirements for the receipt of certain government assistance but did not address recognition, measurement or presentation. In response to feedback, the FASB added a project to its technical agenda to address these issues. 

The FASB has tentatively taken a position on several issues, including:

  • Scope. Government grants would be defined as assistance by a government in the form of transfers of monetary and tangible nonmonetary assets to a business entity.
  • Recognition. A business entity would recognize a government grant when it is probable the entity will comply with the conditions attached to the grant and the grant will be received.

Read more about the project in our web article here.


Reconstituting the EITF

The role of the Emerging Issues Task Force (EITF) is changing. The EITF’s historical role has been to develop accounting standards, subject to ratification by the FASB, primarily to reduce diversity in practice on a timely basis. In 2024, its historical role as a standard-setter or quasi-standard-setter will be discontinued. Its new focus will be on advising the Board on issues the Board should consider adding to the FASB’s technical agenda and suggesting a solution to each of those issues.