Simplifying Accounting Standards
The FASB launched the Simplification Initiative in 2014 to simplify and improve accounting standards through a series of short-term projects. Its objective is to reduce cost and complexity in financial reporting while maintaining or improving the quality of information reported to investors.
As part of the Simplification Initiative, the FASB has completed multiple narrow-scope projects, such as simplifying income statement presentation by eliminating the concept of extraordinary items, simplifying the presentation of debt issuance costs, simplifying the measurement of inventory, improvements to employee share-based payment accounting, simplifying the test for goodwill impairment, and improvements to nonemployee share-based payment accounting, etc. Read more about some of the projects that were successfully completed.
The Board also expanded its efforts on simplification beyond the projects undertaken through the Simplification Initiative. The FASB completed a broad project on the accounting for hedging activities and currently is working on other broad and research projects that are intended to reduce cost and complexity in financial reporting, such as the project on distinguishing liabilities from equity (including convertible debt).
Monitoring the implementation of new accounting standards also provides the FASB with opportunities to consider needed clarifications and simplification. For example, the FASB’s Revenue Recognition Transition Resource Group (TRG) discussed issues that arose as companies prepared to adopt the standard. TRG discussions helped the Board identify a few opportunities to simplify the guidance on principal or agent determinations, performance obligations and licensing, and how a company evaluates whether its promise to transfer a license is satisfied at a point in time, or over time. The FASB also issued simplifications related to the adoption of leases, such as a practical expedient on existing land easements and a practical expedient for private companies, which allows them to use a risk-free rate, rather than an incremental borrowing rate.
Many suggestions for simplification were identified by our stakeholders who widely support the FASB’s continuing efforts to simplify and improve accounting standards. For the FASB’s efforts on simplification to be a continued success, we encourage stakeholders to submit additional ideas for simplification in other areas of financial reporting. Stakeholders should email their suggestions to firstname.lastname@example.org.
For more information on FASB projects, visit the FASB’s technical agenda page.
For more information on Emerging Issues Task Force (EITF) projects that seek to reduce complexity, visit the EITF page.
For more information on Private Company Council (PCC) projects that seek to reduce complexity, visit the PCC page.