For the Investor
By Gary Buesser, FASB Member

Over my 30-year asset management career as an equity portfolio manager/research analyst, most recently at Lazard Asset Management, I realized U.S. Generally Accepted Accounting Principles (GAAP) are the foundation of the United States and global economic system.

Accounting standards should require companies to report financial results in a neutral and comparable manner accompanied by robust disclosures. If that objective is achieved, investors (equity/debt) and creditors will allocate capital to the most innovative well-managed companies. This maximizes U.S./global economic output and benefits all FASB stakeholders.

I recognize that the goals of the Financial Accounting Standards Board (FASB) and professional investors may differ.
 
FASB “establishes and improves financial accounting and reporting standards to provide useful information to investors and other users.”

Meanwhile, investors generate above average returns, grow assets, and maximize profits.
Despite these differences, the interests of the FASB and investors are aligned in a company’s financial reports, 10-Ks, and 10-Qs.

These two groups at times speak different languages. For example, the terms “unit of account” and “fact pattern” are heard frequently at FASB meetings but are rarely mentioned at an asset management firm. Despite these differences, the interests of the FASB and investors are aligned in a company’s U.S. Securities and Exchange Commission’s (SEC) financial reports, 10-Ks, and 10-Qs.

My investor background (I am a CFA charterholder, not a trained CPA) can serve to bridge the “language gap” between the FASB and investors. While researching equity stock ideas I reviewed many company annual and quarterly SEC reports. My experience offers insight into what financial statement information and disclosures provide the most useful information for investors.

I have had numerous interactions with the FASB organization since 2010. I served on the Investor Advisory Committee (IAC) from 2010–2013, the Financial Accounting Standards Advisory Council (FASAC) from 2016–2017, and participated in various investor outreach projects. I developed a great deal of respect for the Board, FASB staff, and their commitment to improving U.S. GAAP.
 
U.S. GAAP and SEC financial reporting requirements provide investors with the relevant information to analyze a company’s revenue, margins, and cash flows to evaluate potential investment opportunities.

U.S. GAAP and SEC financial reporting requirements provide investors with the relevant information to analyze a company’s revenue, margins, and cash flows to evaluate potential investment opportunities. Having said that, there are some areas of financial accounting and reporting that I will advocate to improve, such as:
  • Plain-English accounting standards. There are numerous complex revenue transactions, corporate structures, and financial instruments in today’s modern world. All of these require in-depth accounting standards to accurately portray these events in the financial statements.  Notwithstanding this complexity, the FASB should strive to write new accounting standards that are more understandable for all stakeholders, including investors.
  • Comparable financial statement information and disclosures. In my opinion, a “good” accounting standard that leads to comparable accounting information for similar economic transactions is preferable to a “perfect” accounting standard with multiple options that produces less comparability.  One area I would like to improve is to minimize accounting options so that similar transactions have equivalent recognition and measurement. As an investor, I can not overstate the importance of comparable accounting information in the investment decision process.
  • Greater emphasis on quantitative disclosures. The most informative disclosures should share the following attributes:
    • Quantitative rather than qualitative. Unfortunately, some qualitative disclosures are “boilerplate” and thus provide little-to-no useful information for investors,
    • Comparable across companies,
    • Include annual rollforwards for key quantitative disclosures.    
My goal is to bring my and other investors’ perspectives to FASB discussions to improve accounting standards.
Most investors value companies based on future revenue and cash flow prospects using either a discounted cash flow model or a price target model, such as a price-to-earnings multiple. My goal is to bring my and other investors’ perspectives to FASB discussions to improve accounting standards.

I look forward to meeting with stakeholders, especially investors and other financial statement users, as part of our outreach. As always, we need to hear directly from you about the kind of financial accounting and reporting information you need.