December 5, 2019

The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Thursday, December 5, 2019. The following topics were discussed:

Disclosure Framework: Disclosures—Interim Reporting: FASAC members provided feedback on the Board’s project. The discussion focused on potential changes to add a principle to interim reporting requirements and whether removing or adding interim disclosure requirements would result in improved financial reporting.

Many FASAC members supported the notion of including certain aspects of the SEC language that was removed from Rule 10-01. Some FASAC members expressed concern that the requirements included determinations of both whether an event qualifies as significant and material. Additionally, FASAC members suggested clarification about (a) whether required interim disclosures could be omitted if there were no significant changes or the item is immaterial and (b) the interaction between the interim reporting requirements and other topics within GAAP with interim disclosure requirements, such as hedging. Some financial statement users stated that it is important for companies to provide consistent information each interim period even if the amounts did not change; other financial statement users stated that it was more important to highlight the information that has changed significantly since the previous reporting period.

Impact of Technology: Current and Potential Future Financial Reporting: FASAC members engaged in a broad discussion regarding the potential impact of past and future developments in technology to financial reporting. Specifically, Council members discussed their views about how technology:
  • Has changed or likely will change companies’ preparation of financial statements or the use/consumption of financial statements by investors and other users; and
  • Should be considered by the FASB, including how technology could impact certain standard-setting topics, including the Board’s analysis of the expected costs and expected benefits.
Overall, FASAC members indicated that companies are in various stages of technology improvements, but that practitioners and financial statement users have made large investments. Significant amounts of data are available related to a company’s current and future performance, continued improvements have been made over the past few years that have helped to make data more accessible for internal operations, and automation tools have helped to reduce the manual involvement needed for certain types of individual transactions.

Preparers noted that many companies prioritize technology investments on revenue-generating activities and internal reporting for business and budget-related decisions above investments in technology that support financial statement preparation. Costs of providing data for financial reporting are higher if the information needed is not tracked internally by management or requires a different level of precision and internal controls. Practitioners stated that their firms have invested heavily in technology to support the services that they provide to their clients across their audit, advisory, and tax service lines.

Investors and other financial statement users shared their perspectives and observed that they also have varying information needs. Some users suggested that companies could enhance investors analysis by utilizing technology tools to create a “virtual data room,” whereby different sources of existing information (such as financial statement filings, loan agreements, and other significant documents and agreements) could be aggregated and accessed in one place. Other FASAC members cautioned that this concept should be separate from the concept of continuous reporting, which could reduce the quality and assurance supporting externally reported information.

In general, FASAC members agreed that any new accounting standard would likely result in incremental cost associated with companies’ information systems and/or collecting new data; that cost should enter into the FASB’s cost-benefit assessment. Companies have spent significant time and resources to update and optimize internal systems related to the implementation of major accounting standards over the past several years. FASAC members also reasoned that the current technological environment has been built to fit the existing accounting standards, rather than anticipate future improvements to the accounting standards. FASAC members also discussed how technology could impact current and potential future standard-setting topics, including segment reporting, direct cash flow statements, interim reporting, rollforwards, and inventory.