“We certainly recognize that there is a ton of change in the system,” said Marc Siegel, member of the Financial Accounting Standard Board (FASB) at Financial Executive International’s Current Financial Reporting Issues Conference in New York last week. “It’s something that we identified early on, but there is no change for the sake of change.”
Over the long term FASB is focused on two projects that are a reaction to disruption in the financial system: distinguishing liabilities from equities and financial performance reporting.
The past several decades has seen a meteoric rise in financial instruments that straddle the line between debt and equity, from convertible debt to convertible preferred stock. Often filled with complicated triggering mechanisms, these instruments also bring up challenging accounting questions like how to measure their performance or when is an asset (or liability) actually surrendered.
FASB took into account traditional input from stakeholders when prioritizing the project on the board’s agenda. But it also considered other “attributes” that gave it precedence, like an increasing number of public company restatements tied to distinguishing liabilities and equities.
“It's become a very complex area through the evolution of the financial markets and the accounting evolved over decades,” said Marsha Hunt, FASB board member regarding the growth of hybrid products. “It's always been a current area through the topics that we have evaluated as an increasing source of restatements.”
In terms of performance management, FASB added new focus on disaggregation of performance reporting by function and nature.
Whether FASB is the disruptor, or being disrupted, is often in the eye of the beholder, said Amie Thuener, Vice President and Chief Accountant for Alphabet.
“Some likely see the FASB as the disruptor, given the list of new signficant standards that are being implemented, Thuener said. “Alternatively, you may think of FASB as reacting to disruption.”
Hunt concluded that in terms of any short term of long-term projects, the focus in less on what is being disrupted and more on decreasing complexity,
“[These] are going to be long projects and will affect many industries,” Hunt added. “It is also addressing complexity. We are always looking for ways to address cost and complexity, but
What is simple for one person may be complex for someone else.”
Implementing “New GAAP” is a Priority
For the immediate future FASB and the SEC are focused on the repercussions of the January 2018 implementation of the
new revenue recognition rules, as well as the adoption of the
lease accounting standard, which has an effective date of 2019 for public companies and 2020 for most other organizations.
Consultations with industry practitioners with the SEC are up 15% year over year mostly due to revenue recognition implementation questions, said Sagar Teotia, Deputy Chief Accountant in the SEC’s Office of the Chief Accountant.
“There is not a day that goes by that we do not talk to someone about ‘New GAAP,’” Teotia said, citing rev rec, leasing and changes to the current expected credit loss (CECL) model as “New GAAP” initiatives.
“A top priority is the implementation of these new standards,” adding that the SEC wasn’t planning any “surprises” for December that would throw off the implementation timeline.