FASB officials gave an informative presentation at the Conference on Tuesday afternoon. FASB Chair Richard Jones emphasized how the FASB has engaged with investors in all stages of its standard-setting process and is actively listening and responding to investor feedback, as evidenced by the 2022 FASB Investor Outlook Report. Jones’s comments aligned with Monday’s remarks by SEC Acting Chief Accountant Paul Munter on meeting the information needs of investors; read our related blog here. Jones also noted however that standard-setting is a balancing act because standards must not only produce decision-useful information to investors, but must also be operable and auditable.
“Recent changes to the FASB’s technical agenda seem to be partly in response to observations by the SEC and the Investor Advisory Committee that the Board has placed more emphasis on simplification efforts to alleviate preparer burdens than on pressing accounting issues that continue to evolve in our ever-changing business environment. ”
— Kimber Bascom, KPMG Accounting Standards Leader and EITF member
Jones highlighted that the FASB’s agenda consultation process has resulted in significant changes to the technical agenda, with some projects being removed, some added and others refocused. He also noted that the FASB is focusing on ‘achievable standard-setting’ – meaning it makes sure it defines the scope of a project early in the standard-setting process and that the majority of Board members agree with the direction of the standard’s development.
During Monday’s remarks, Munter stressed the importance to investors of financial statements containing greater disaggregation of certain information. Jones reiterated this point by noting three current disaggregation projects on the FASB’s technical agenda. Hillary Salo (FASB Technical Director) and Helen Debbeler (FASB Deputy Technical Director) walked the audience through these projects.
The proposed improvements to segment reporting would require public entities to disclose the significant expense categories in each reportable segment, in addition to all of the segment disclosures currently required. Companies would have the ability to report multiple measures of segment profit or loss.
The FASB is now accepting comments on a proposed ASU. Read more about the project here.
Income statement disaggregation
The second disaggregation project is on the disaggregation of certain income statement line items and is not as far along as the segment reporting project. The Board decided that the scope and objective of this project should be based on the decision-usefulness of income statements through the disaggregation of relevant expense line items, such as employee compensation, depreciation and amortization. The Board is also considering requiring disaggregation of costs capitalized during the period (e.g. raw material and labor related to inventory).
This project is particularly significant because financial statement presentation in general goes to the heart of financial statement usefulness.
Income tax disclosures
The FASB refocused the scope of its income tax disclosures project to meet the information needs of financial statement users when making capital allocation decisions. In line with this new focus, in December 2022 the Board decided to issue an exposure draft that would require:
- disclosure of income taxes paid year to date, disaggregated by federal, state and foreign taxes (on an interim and annual basis), and further disaggregated for each individual jurisdiction that exceeds 5% of total income taxes paid (on an annual basis); and
- disclosure of rate reconciliation information by specific categories, including (but not limited to) state and local income tax, foreign tax effects, tax credits and valuation allowances.
Jones noted that this project will be particularly helpful in better understanding taxes paid by multi-national corporations. His remarks are consistent with prior statements by SEC Chair Gary Gensler that disaggregated tax reporting from multi-national companies in the jurisdictions in which they operate could benefit investors.
An exposure draft will be released early in 2023 with a 75-day comment period.
“FASB recently shifted the focus of its income tax disclosures project to be more reactive to investor needs. As currently envisioned by the Board, this project will significantly expand what is disclosed and how the information is disaggregated − giving investors a detailed look at a company’s worldwide tax obligations. ”
— Nick Tricarichi, KPMG Partner
Regarding the project on digital/crypto assets, Jones noted that the FASB considered feedback and has tentatively decided that commercial companies holding crypto assets should measure those assets at fair value. But he noted there are many different types of transactions and issues involving crypto that are addressed by existing standards.
Debbeler explained that the scope of this project is limited to crypto assets meeting five scoping criteria (including that they meet the Master Glossary’s definition of an intangible asset). The project is moving quickly because the Board decided not to include implementation guidance specific to measuring these assets; it believes the existing guidance in ASC 820 (fair value measurement) is sufficient. The Board is scheduled to address presentation and disclosure issues on December 14 and effective date and transition issues shortly thereafter, with a potential exposure draft being released in the first half of 2023.
Read more about the project here.
Other investor-identified priorities
Salo mentioned the large amount of feedback the FASB has received about developing ESG-related standards. As a result, the FASB has added a project on environmental credit programs to its technical agenda (read more about the project here) and the staff is researching a possible project on financial instruments with ESG-linked features.
Salo and Debbeler completed the session by briefly recapping several other projects on the FASB’s technical (and research) agendas:
- common control leases;
- joint venture formation;
- proportional amortization method;
- software costs; and
- government grants (research agenda).