For the Investor:
What the FASB Learns from Investor Roadshows
In a prior FASB Outlook article, I discussed how and why the FASB seeks out investors’ opinions and comments. One of these methods, the investor roadshow, is an important part of how the FASB receives high-level strategic input from investors.
In June, a FASB senior investor liaison and two FASB Board members spent a day in New York City in small group meetings with investors. The meetings did not have formal agendas and were not in-depth technical accounting teach-ins.
Investor roadshows help us gain insight into ongoing or emerging accounting issues that may exist in the marketsInstead, investors were encouraged to talk broadly about financial reporting and the issues they face in doing their jobs. Given the mission to improve financial reporting for investors, investor roadshows are integral to understanding of whether the FASB is focused on the right areas. These meetings help us gain insight into ongoing or emerging accounting issues that may exist in the markets.
The roadshow meetings were set up with a wide range of investors, including sell-side accounting analysts; buyside analysts and portfolio managers at “long-only” funds; and analysts and portfolio managers at hedge funds with varying investment strategies. In each meeting, we traveled to the investors’ locations in order to encourage broader participation.
In addition to some brief conversations regarding stock compensation and international convergence, we discussed:
Revenue Recognition: It is not surprising that revenue recognition is a major focus for investors. Many investors were interested in learning about the possible implications of the new revenue recognition standard (click here for a FASB In Focus) on the industry sectors that they follow.
A few buyside generalist analysts were intrigued by the idea of potentially getting more top-line comparability between companies that operate in disparate sectors.
Also, some pointed out that they will be looking for companies to provide information prior to the effective date about how they will be transitioning to the new standard and what the impact might be on revenue and gross margin trends.
Taxes: Corporate tax strategies were raised in several meetings. While investors were certainly concerned about strategic issues that are outside the mandate of accounting standard setting, these investors also said that the tax footnote in the financial statements currently is inadequate.
For example, one portfolio manager highlighted the recent wave of inversion deals and, as a result, sought more transparency around tax exposures in different national jurisdictions. The tax footnote was identified as one of three areas where the staff and the FASB will attempt to apply the concepts of the Disclosure Framework project to rewrite the tax disclosure requirements.
I was encouraged that other issues raised by investors during the roadshow are under consideration by the FASB.In addition to revenue recognition and taxes, I was encouraged that other issues raised by investors during the roadshow are under consideration by the FASB. For example, investors raised concerns about defined benefit pension accounting and interest rate risk.
While there were several views on how to improve pension accounting in general, there was a consensus that an improvement to current reporting would be to break out pension costs into operating and nonoperating components.
Interest rate risk was raised by an individual analyst. While public financial institutions are required to discuss this in the management’s discussion and analysis section of regulatory filings, the disclosures are often not comparable from one organization to another.
Another issue raised was research and development costs.
For investors looking to participate in future investor roadshows, please don’t hesitate to be in touch with me or either of our senior investor liaisons. They can be reached anytime via email, or you can reach them by calling (203) 847-0700.