Financial Accounting Standards Board chairman Russell Golden marked FASB’s 40th anniversary in his first major speech since taking over the chairmanship in July, outlining the changes he plans for the standard-setting board.
Golden emphasized that FASB needs to work more closely with outside groups and listen to their feedback, away from FASB headquarters in Connecticut. “It means rappelling down the high walls of that Ivory Tower that some people still see at 401 Merritt 7 in Norwalk and spending a significant amount of time with the people who are directly and indirectly affected by the standards that we set,” he said Thursday during the FASB@40 event in New York commemorating the founding of the board and its parent organization, the Financial Accounting Foundation, in 1973.
FASB plans to work more closely with its sister organization, the Governmental Accounting Standards Board, which is also overseen by the FAF, in areas such as pension accounting and leases where the two boards can leverage each other’s work. Golden is working in tandem with David Vaudt, the new chairman of GASB, who like Golden began his term on July 1. The two men visited the Accounting Today offices this summer to discuss their plans for the two boards (see Enter Golden and Vaudt).
Golden also told the audience about his plans for simplifying FASB’s U.S. GAAP accounting standards codification to make it easier to use.
“Most agree and applaud the concept of the codification, but they also observe that, as presently constituted, it is very cumbersome and not user friendly,” he said. “Over the coming months, the FASB will conduct an analysis of areas where the codification may be improved. We will determine whether we can improve upon how we write and communicate changes to the codification. We will consider if we can and should be more flexible. We also will consider improvements suggested by our stakeholders. And we will begin to rewrite some of the more confusing sections. Currently, for example, we are in the process of rewriting the liabilities and equity section of the codification.”
Private Company Accounting Changes
FASB has begun working more closely with the recently established Private Company Council, which also operates under the auspices of the FAF and helps determine changes in U.S. GAAP for private companies. Among the PCC’s proposals are changes in the areas of intangible assets acquired in business combinations, goodwill, and certain types of interest rate swaps. FASB issued proposals on those topics this summer.
Golden also pointed out that FASB voted this week to add a project to its agenda to address the concerns of development-stage enterprises, both public and private (see FASB Plans to Streamline Accounting Standards for Development-Stage Companies). “The project is intended to reduce cost and complexity in the financial reporting system—without regard to a public versus private distinction—while maintaining the relevance of information,” he added. That project too, he observed, came from a PCC recommendation.
Evolving Relationship with IASB
FASB is also planning to issue the long-awaited converged standard on revenue recognition that it has been working with the International Accounting Standards Board to formulate. The final standard is due to be released in the fourth quarter of this year, Golden noted. In addition, FASB and the IASB plan to release final standards on two financial instruments projects—classification and measurement, and impairment—in the first half of 2014. “A final standard on leasing also should be completed in 2014 and we will finalize decisions on insurance thereafter,” said Golden.
Another area of change is FASB’s relationship with the IASB. Golden pointed out that the two groups have worked together since they signed the Norwalk Agreement in 2002 to more closely align U.S. GAAP with International Financial Reporting Standards. However, the IASB is moving toward a more multilateral model of standard-setting with the establishment of the Accounting Standards Advisory Forum, in which FASB and other national and regional standard-setters from around the world will be playing a role in advising the IASB on improvements in IFRS.
“I envision a long-term, global standard-setting environment in which the FASB, the IASB and other major capital market standard setters co-exist and cooperate with the stated goal of issuing converged standards, while also addressing the specific needs of the capital markets for which they set standards,” said Golden.
But he observed that FASB’s first priority is to improve financial reporting for the benefit of investors and other users of financial information in U.S. capital markets.
“While working to improve U.S. GAAP, the FASB also seeks to promote and enhance the quality, comparability and consistency of international financial reporting,” he said. “However, reducing global differences in financial reporting is dependent on more than simply reducing differences in financial accounting standards. As others have repeatedly pointed out, significant differences continue to exist in the auditing and enforcement of financial reporting in jurisdictions around the world. Therefore, broader or more complete convergence of financial reporting cannot be accomplished through financial accounting standards alone. While this is a dynamic issue that gives rise to many strongly held views on a global scale, I believe that the FASB can successfully carry out its mission of improving financial reporting for U.S. capital markets while also seeking to improve and converge financial reporting internationally.”
One way financial reporting can be improved for the U.S. capital markets is through further development of U.S. GAAP. “Because the FASB’s primary objective is promoting the reporting of highly relevant information for financial statement users of companies reporting under U.S. GAAP, the FASB should continue to undertake improvements to U.S. GAAP when necessary to meet the needs of investors and other users of companies preparing U.S. GAAP reports both within and outside the United States,” said Golden. “In those cases, the FASB should, as a starting point, carefully evaluate and consider IFRS when implementing improvements to U.S. GAAP, seeking to promote global alignment where it is in the best interests of investors and other capital market participants. Any improvements that the FASB makes to U.S. GAAP also may influence the shape and future direction of international standards.”
But FASB also needs to actively participate in the development of IFRS, Golden pointed out. “The FASB should advance the development of IFRS by actively providing input on IASB projects through the recently created Accounting Standards Advisory Forum and through other means,” he said. “The FASB should contribute to the development of IFRS by sharing views developed through the FASB’s due process, stakeholder outreach, analysis and deliberations. Likewise, the FASB’s effort to improve U.S. GAAP will benefit from the additional international input resulting from its interactions with the IASB. In all instances, the FASB’s objective will be to promote the improvement and convergence of U.S. GAAP and IFRS.”
Golden believes FASB also needs to enhance its relationships and communications with other national standard setters, in addition to the IASB. “The FASB should maintain and strengthen its existing cooperative relationships with other national standard setters to promote the broader flow of information and ideas that mutually inform each other’s thinking and contribute to an environment that will foster greater convergence,” he said. “This type of cooperation and collaboration would continue the process of developing the highest-quality standards while promoting global convergence. In some cases, the need of the FASB (and other national standard setters) to best serve the interests of investors in their own capital markets may outweigh the goal of creating completely converged accounting standards. But following this path would enable us to work cooperatively with the IASB and others toward the goal of ultimately agreeing on and adopting standards that either are converged or that have the fewest possible differences. Even as we stay committed to global convergence, we also need to address the pressing needs of users of U.S. GAAP financial reports.”
After his speech, Accounting Today asked Golden if by focusing on improving U.S. GAAP for the U.S. capital markets, that might lead to some divergence from IFRS. “I’m hopeful that we can improve U.S. GAAP and also seek to make it as comparable as possible,” he responded. Asked whether that meant U.S. GAAP would be comparable, but not necessarily the same as IFRS, he added, “To me, the goal is that the investor gets comparable information. So the best thing to think about is, what is the problem we’ve identified in the U.S., and what are the potential solutions? And when we think about those potential solutions, we’re going to look at what other standard-setting groups have done around the world to see if they have a solution that we can use.”