June 20, 2019
The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Thursday, June 20, 2019. The following topics were discussed:
Effective Date Consideration for Private Companies, Not-for-Profit Organizations, and Small Public Companies: FASAC members provided their views on the FASB’s research project, focusing on recent major standards including leases, hedging, credit losses, and insurance. Overall, Council members expressed diverse views on the philosophy for effective dates for major projects. Many Council members supported providing organizations with fewer resources additional time to implement major standards, particularly given the number of major standards issued in the last few years. Council members also encouraged the Board to consider the need for (and time lag associated with) staggered effective dates on a standard-by-standard basis, rather than establishing an inflexible time lag for private companies and others. Those members observed that the time lag should vary, depending on the potential costs and complexity of the guidance. Council members also observed that there are some challenges with staggered effective dates, including potentially decreased comparability between organizations and difficulties in applying the equity method when the investors and investees follow different effective dates.
Implementation of Leases: FASAC members participated in the first of a series of discussions on the FASB’s post-effective date assessment of costs and benefits of the leasing standard. This session focused on public companies’ initial and recurring costs of transitioning. Some Council members noted that although the adoption of the standard had an insignificant overall impact on some companies’ financial statements, the initial level of effort and cost to apply the standard was somewhat higher than originally anticipated, primarily because of needed systems changes or new systems. Some members also commented on some of the benefits of adoption to their companies: better centralized processes to manage their leases, improved internal consistency of leases, and increased ability to manage an organization’s asset base and lease obligations. Expected recurring costs include costs to capture the required data, sustain internal controls, and preserve systems.
Other members, particularly investors and users, are beginning to consider the resulting changes in companies’ financial statements and how those changes impact their analysis or models. Those Council members indicated that additional time is needed to assess the benefits of the change in the leases standard. Council members also discussed implementation issues related to the incremental borrowing rate, certain disclosures, and related parties.
Segment Reporting: FASAC members discussed potential improvements to segment reporting disclosures, centering on the approach to requiring additional disclosure by reportable segment. Overall, Council members preferred a principles-based approach to requiring additional disclosure by reportable segment, due to the wide variety of industries. Council members, particularly investors and users, expressed support for that approach and explained that having consistency over time for an organization could be more useful than comparability between organizations.
The FASB Chairman provided highlights on FASB activities, and SEC and PCAOB staff members commented on current issues and activities.
The next FASAC meeting will be held on September 24, 2019. For more information on FASAC, visit the FASB website.