The Financial Accounting Standards Board is doing more rigorous cost/benefit analysis of any new changes in accounting standards, and in some cases that is causing some of the divergence from the International Accounting Standards Board, according to FASB officials.

Speaking at Financial Executives International's Current Financial Reporting Issues Conference in New York in mid-November, board member Marc Siegel provided an update on FASB's work. He referred to the "dilemma facing FASB over its current leasing project" with the IASB.

He noted that the cost/benefit analysis was part of the reason why FASB had chosen to diverge from the IASB in some respects on the leasing standard, although both boards agree on the fundamental concept of putting leases on the balance sheet. FASB hopes to complete its major deliberations with the IASB by the end of 2015 on the new leasing standard and issue a final standard by the end of 2015. However, the effective date of the new standards has not yet been determined.

FASB is doing a cost/benefit analysis not only on new accounting standards, but also as part of its Disclosure Framework project, which aims to reduce disclosure overload.

"Reducing the cost of reporting without significantly reducing the relevance of reports simply benefits investors," said Siegel. "So we have been reviewing existing standards to look for costly provisions that result in information of limited utility to investors."

 

MAKING THE SWITCH

Meanwhile FASB and the IASB are working together on implementing the recently released revenue recognition standard. "Implementation will be key to the overall success of the revenue recognition standard," said FASB assistant director Cullen Walsh, who appeared alongside Siegel during the FASB update.

FASB and the IASB have set up a joint transition resource group to help accountants adjust to the new revenue recognition standards. The group won't have the authority to set up its own guidance, but it will be able to recommend areas for the standard-setting boards to examine more closely, so they can issue further guidance if needed. A representative from the American Institute of CPAs' Financial Reporting Executive Committee sits on the transition resource group, and the AICPA is advising on industry-specific issues that CPAs might face in the new standards and that will inform the industry guides it is developing, according to Siegel.

Walsh said that FASB is doing webcasts and offering an online technical inquiry service where accountants can submit questions about the revenue recognition standard. The new standards do not take effect until Dec. 15, 2016, but Walsh acknowledged that both FASB and the IASB have received requests from some of their constituents about delaying the effective date of the standards. They hope to make a decision in early 2015 about whether to delay the standard, perhaps during a joint meeting with the IASB. The IASB allows for early application by companies of the new standard, but FASB does not.

 

A SMALL WORLD?

Like the IASB, FASB is pursuing more of a multilateral approach to standard-setting, working more closely with other national standard-setters on areas such as goodwill impairment. Siegel said that FASB is still participating in the IASB's own Accounting Standards Advisory Forum, which is the multilateral group of national and regional standard-setters that the IASB established to provide advice on International Financial Reporting Standards.

"We've had several board members make a trip to Asia recently where we met with Japan and China and others, like Korea," said Siegel. "Obviously, all the time we're meeting with folks in Europe and different standard-setters there. It's certainly not meant to be an alternative to the ASAF. It's really just meant to understand the different issues that other countries are seeing as they apply IFRS or U.S. GAAP for their own local set of standards and trying to see whether we can promote more convergence around the world as we all try to deal with the same kinds of questions."

FASB has been diverging in some respects from the IASB on the financial instruments project, in part due to its cost/benefits analysis. The IASB separately issued its own financial instruments standard in July.

FASB was expected to release its version by the end of the year, but Walsh said that may not happen by December 31, although he said to expect it "in the near term."

Siegel said FASB is getting close to the end of its work on the classification and measurement of financial instruments, as well as the impairment part of the standard.

In addition to working on what it considers "foundational projects" such as leasing, financial instruments, and its disclosure and conceptual frameworks, FASB is also adding more short-term projects to its agenda as part of its simplification initiative to make incremental improvements in standards. Among those Walsh highlighted at the conference are the balance sheet classification of debt and share-based payments.

FASB has also been working closely with its sister organization, the Private Company Council, on simplifying accounting standards for private companies. In some cases, such as with the PCC's recommendations for adjusting the standards for amortization of goodwill, FASB wants to widen the applicability to public companies as well as private companies and has effectively taken over those projects. But Walsh said the PCC continues its own meetings and work on private-company standards. "They still meet regularly and they identify areas where we should research to see if there is an improvement to make for private companies, but it so happens that some of the things they have identified lately, like stock compensation, they recognize it's not just a private-company issue," said Walsh. "Since the PCC can only do private-company issues, the view is let's have this be a board project so the improvements can be made for all entities, not just private companies."

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