The Art of The TRG

What goes into the FASB’s decision to form a Transition Resource Group (TRG) for a particular accounting standard?

 “When I was in public accounting, [I was guilty] of being in the so-called secret societies at the large accounting firms,” shared vice chairman of the Financial Accounting Standards Board (FASB) Jim Kroeker. “That, as a new standard comes out, the firms get together and they huddle and respond to common implementation questions and practices, but not all of the voices are heard.”

In an attempt to solve this issue and to “elevate the resolution of implementation practices and questions to a more public dialogue,” the FASB created the Transition Resource Group (TRG) process. Specifically, the FASB has utilized TRGs to discuss potential issues arising from the implementation of the revenue recognition and current expected credit loss (CECL) standards. 

On the reasons why the groups are formed, Kroeker shared, “We were trying to strike a balance between ease of application, getting those voices involved, and more generic guidance as opposed to formal standard setting. That doesn't mean it hasn't resulted in some standard setting, but I think that was then really to ease application. Again, if you think of revenue recognition, the guidance that we added, the expedience on sales and other similar taxes, or not needing to apply the standard to items that are immaterial in the context of the contract, are good examples of what we were trying to do there.”

At FEI’s Current Financial Reporting Issues Conference, the question of why the challenges related to these standards resulted in the creation of TRGs, while those related to the new leasing standard did not, was raised to panelists Kroeker and FASB member Marsha Hunt. 

“The art of when do we establish a TRG, I think that's something we ought to reflect on as well,” said Kroeker. “The thought process is when there's a major change, we ought to do that. That was revenue recognition, that was the credit impairment. Leases, I think, was a judgment call, and, in hindsight, given the volume of questions, might have served well to have had one there, although we've taken on a number of means to supplement that by having our staff meet frequently with groups of preparers and auditors.”

Kroeker stressed the importance of feedback from the preparer community. “Taking a step back after [leasing standard] implementation and then talking about, are the costs ongoing costs, or were those transition costs? I think that's an area where we're going to be doing some outreach after the implementation. We've already started that with revenue recognition, but we want to do the same with leases. Where were the challenges?”