Update on FASB Projects
In just twenty minutes, Financial Accounting Standards Board (FASB) Chairman Leslie F. Seidman provided conference attendees with an overview of today’s key accounting issues. Although she tried to frame it as a briefing one would give in an elevator, she observed it would need to be “a very large elevator, in a very tall building.” Seidman chose two topics to highlight, providing sufficient information so attendees would be able to inquire their management teams further.
Seidman first addressed FASB’s project on convergence and the adoption of IFRS standards. Although FASB has been committed to adopting global accounting standards since the 1990s, the project has somewhat stalled in the last several years as a result of the financial crisis. Not only have key components seen significant delays, in July the Securities and Exchange Commission (SEC) issued a report on the project which did not include a decision or recommendations for future work.
Although Seidman believes the financial crisis has highlighted the need for consistent reporting globally, the fallout has shifted attention away from the convergence project. Additionally, the economic recession has made the cost-benefit analysis of switching standards an even larger issue. Because the vast majority of companies in the U.S. are domestically focused in both their operations and where they raise capital, the benefits of consistent standards must outweigh the potentially significant costs. Furthermore, if globally accepted standards are implemented, they will not necessarily be applied consistently, which can result in reporting that is still not comparable.
Despite the project’s roadblocks, the FASB will continue to work with the IASB. Directors can expect either reports or exposure drafts to be issued in the first quarter of 2013 on revenue recognition, leasing and certain areas of financial measurement. An exposure draft on the impairment element of financial instruments is expected to be released in the fourth quarter of 2012.
Seidman also discussed the issue of disclosure reports. Specifically, a call for companies to use disclosures to highlight only material information. Reports should also be structured to highlight the most important information in footnotes. She noted two companies, Sprint and Hartford, who voluntarily cut the length of disclosures without FASB assistance. At these companies, senior management committed to an examination of footnotes to remove immaterial, irrelevant information.