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FASB looks to the future: standards setting in the Post-convergence world.

In October 201 1, FASB Chair Leslie F. Seidman appeared at the NYSSCPA s I International Financial Reporting Standards (IFRS) Conference and presented her I views about (he global issues currently facing the U.S. accounting profession, and her forecast of FASB's role in a post-convergence world.

Prior to assuming the role of chair, Seidman rose through the FASB ranks, first as industry fellow. later as project manager, and then as assistant director of research and technical activities. As chair, she leads the organization in providing guidance on both global and domestic concerns, and her breadth of expertise includes private companies and nonprofit organizations, as well as public companies.

CPA Journal Editor-in-Chief Mary-Jo Kranacher sat down with Seidman after the conference to discuss her perspective on standards setting, as well as her thoughts on the challenges and opportunities currently facing the profession.

A Global Role

The CPA Journal: At the June 2011 joint board meeting, FASB and the International Accounting Standards Board (IASB) agreed to follow divergent paths on the issue of balance sheet offsetting. Although the two boards reached agreement on a converged offsetting disclosure framework, the IASB wanted to retain the existing IFRS offsetting criteria, found in IAS [International Accounting Standard] 32 Financial Instruments: Presentation, but FASB chose to retain the presentation guidance as written in U.S. GAAP. Would you characterize efforts in this area as unsuccessful?

Leslie F. Seidman: First, let me emphasize that the basic principles underlying offsetting between U.S. GAAP and IFRS are quite consistent. There are some criteria that must be met before you generally would offset a financial asset and a financial liability. The area where we did not agree relates to a narrow exception in U.S. GAAP for derivatives that meet certain very stringent requirements in addition to the general principles for offsetting. So I wouldn't want people to think that the standards are not consistent in the vast majority of cases; indeed, they are.

But with respect to the difference, it comes down to the view of the majority of FASB board members--we did not have compelling evidence that our standard was not already providing the most useful information to investors. That standard has been in place for over 10 years and we never heard any concerns about it. So for the United States, this would have been a significant change; perhaps it was a different consideration for the IASB, because they voted not to change their standard. We felt that we had to be sure the change would have resulted in improved information, and that's why we agreed to disagree.

Taking a step back, we are moving toward providing disclosures for that narrow exception, so that investors around the world can compare the information provided by a U.S. organization holding significant amounts of derivatives to information provided by an international organization with derivatives. Would I have preferred that we had completely agreed on the standard? Yes, but we did not believe that changing U.S. GAAP in this instance was the appropriate step at this time.

CPAJ: The IASB has indicated that carve-outs don't really provide a truly global set of standards. Do you agree with that?

Seidman: Our starting point in addressing any accounting standard, including the standards on the convergence agenda, is to ensure that we're setting our standards in an independent manner and developing improved standards that benefit U.S. investors.

I'm not sure that all carve-outs are necessarily bad things. It depends on whether there's a unique phenomenon in the United States that warrants a different approach, or whether it's just a matter of personal preference. If it's a matter of personal preference, I don't believe it has any place in this discussion. But I do think that some situations might warrant a different approach.

One example that comes up frequently is litigation: In the United States--because of the peculiarities of our court system and the rules of discovery, among other things--people are very concerned about information required by an accounting standard or a disclosure standard that might become discoverable and interfere with the ultimate resolution of a lawsuit. We don't hear those kinds of concerns from other parts of the world. So that might be a case where, if we were to conclude that there needs to be a different standard in the United States to deal with our unique legal environment, it might be appropriate--although I think I need to know more about the facts and circumstances before I'm willing to call it a carveout, which has such a negative connotation. Similar things should be accounted for similarly in similar environments, but different things really should be reported differently. And there may be different environmental factors that lead you to a different answer.

CPAJ: What do you think FASB's role would be in a post-convergence or postcondorsement environment?

Seidman: I see the role of the FASB as helping our country to understand what changes are being proposed, gather their input, and be a strong voice in the process to make sure we end up with standards that benefit U.S. investors and other users of financial statements. FASB also should ensure that the standard can be implemented by our preparers and auditors at a reasonable cost.

CPAJ: Setting global standards is only part of the challenge. How do we ensure that international standards are enforced consistently?

Seidman: FASB has no powers of enforcement. We rely on our securities regulator to do a good job in that regard. I think the answer has to be coordination among the national regulators to develop common objectives and share information about how standards are being applied and interpreted. This will lead to consistent enforcement and consistent reporting, and I am encouraged to see some progress in that area. At the end of the day, if the information isn't comparable, we have to understand why, and the appropropriate party should take steps to address the issue.

Rethinking Exposure Drafts

CPAJ: In your speech, you mentioned a new technique that FASB will use during the revenue recognition exposure draft comment period, whereby workshops will be held and companies will be asked to prepare before-and-after samples of common transactions under U.S. GAAP and the proposed standard. How did this idea originate?

Seidman: That's a great question. The idea originated from some consistent feedback we were getting when meeting with investors who felt that it would enhance their ability to give us feedback on proposals if they could see a before-and-after view. But we were somewhat limited in our ability to do that in a detailed way for different types of transactions in different types of sectors. So we thought; Why not ask the companies to do it? We started with the end goal of giving investors visual aids to show them the effects of a standard. And then we thought to involve the companies because they, of course, are in the best position to do this analysis. It will also provide us with additional information about whether the companies understood the requirement and whether they encountered any unintended consequences. Let me clarify that the companies will be evaluating hypothetical, but representative, transactions rather than restating their financial statements.

CPAJ: Do you foresee that this technique might be used in other proposals going forward?

Seidman: Before I say we're going to roll this out on every project, I'd like to see how this goes. But I have a feeling that it's going to be very successful. We have used the technique of meeting with companies in workshops before, but it was handled in a more ad hoc manner, where we let the companies present the information in whatever format they felt would best contribute to a dialogue. This time, we're going to ask them to do it in a particular way--again, with the goal of having materials to use with investors.

Private Company Financial Reporting

CPAJ: Let's talk about one of the hot topics in the profession--private company standards. In January 2011, the Blue Ribbon Panel on Standard Setting for Private Companies recommended that a separate board be established In October, the Financial Accounting Foundation (FAF) rejected that recommendation and instead proposed a council, essentially a replication of what exists today in the Private Company Financial Reporting Committee (PCFRC), which is subject to the ratification of FASB. Many believe that nothing will change for private companies as long as FASB still has veto power. How would you respond to them?

Seidman: First, I'd like to challenge a couple of the assertions that are embedded in your question. You used the word "rejected." I'd just like to share that, from my perspective, the FAF embraced almost every aspect of the Blue Ribbon Panel recommendation, with the exceptions being FASB ratification of the votes that the council takes and the involvement of a FASB board member as chairman. I also would point out that the other organization that collaborated with the FAF and the AICPA in creating the Blue Ribbon Panel, the National Association of State Boards of Accountancy, recently passed a board resolution endorsing the plan outlined by the FAF Trustees.

I have heard people say that this council is very similar to our existing PCFRC, and I disagree with that in a couple of respects as well. Number one is that, right now, the PCFRC does not vote on proposed changes in accounting and we do not integrate the discussions of the PCFRC with FASB board deliberations. I think it would be a very different dynamic if this group was empowered to review the board papers, have FASB staff dedicated to developing materials for them, discuss the issue with the FASB present, and then reach a conclusion. Yes, the FASB board members would ultimately ratify the conclusion based on some agreed-upon criteria that have yet to be developed. But let me share with you that we have a very similar model with the EITF [Emerging Issues Task Force]; I can't think of a case where we have not ratified an EITF conclusion. I think one of the most significant differences between what we do today with the PCFRC and what is proposed in the future is that we would develop some commonly agreed-upon criteria for when differences are warranted. That is a key element of the trustees' proposal that we do not have today.

CPAJ: According to a recent AICPA press release, FASB's focus has been on "the public company sector and on international convergence." For those issues that are unique to private companies, will FASB have the resources and the will to give these issues more than just the crumbs of its time and efforts?

Seidman: Absolutely. We have been demonstrating our commitment to focusing on the unique concerns of private companies. We have expanded our professional staff so that we have a private company perspective on every project team. We are dedicating staff to the development of a differential framework, which will inform our thinking on every project going forward. This framework would, of course, be exposed for comment, and if the FAF ultimately decides to move forward with the PCSIC [Private Company Standards Improvement Council], I think it is very important for them to have input before it is finalized.

But an important point to make is that, often, many of the concerns that are expressed by private companies are quite similar to the points made by all of our stakeholders, having to do with issues like complexity and understandability. I think that we need to first develop a framework that will give us a better sense of what kind of differences we foresee. We will also need to set up a process of going through the discussions with an intense focus on private company issues, which will help us more efficiently evaluate their concerns. We are going to dedicate the time that's needed to do a good job in analyzing these issues.

CPAJ: How do you believe financial reporting can be made more relevant and cost-effective for private companies?

Seidman: To be more relevant, we need to have a clear understanding of what the users of financial statements want out of private company financial statements. One of the important findings that resulted from our outreach over the last year or so to the users of financial statements of private companies was that the most common users of private company financial statements are lenders, with other investors or sureties coming in second and third. It raised the question: If you have a lender as your primary user of financial statements, who has access to any information that management is willing to provide--in other words, they're not constrained by Reg FD [Regulation Fair Disclosure]-- what does that mean in terms of a different approach for standards setting? We would like to learn more about what is most relevant to the primary users of private company financial statements.

First, we have to understand what information people want, and then we have to understand how that information can be provided in the most cost-effective way. This is something that we hear about from all of our stakeholders. We need to do a better job of trying to understand the costs involved, and that's where we've made a significant effort to improve our outreach to preparers of financial statements and auditors of financial statements, from both private companies and public companies, to try and understand whether there's a more cost-efficient way to provide the relevant information that people are seeking.

The multiemployer pension plan project is a great example of this. People understood that there wasn't enough information out there about these plans, and they worked with us very closely to give us the information that's readily available in their systems or in their benefit plans so they could disclose at a reasonable cost We want to work with people to figure out how we can get relevant information out to investors without causing significant costs to be incurred. I think having outreach meetings, field visits, and interactions with people is the best way for us to get a handle on both the benefit side and the cost side of the equation.

CPAJ: Do you think the standards for private companies should be different in some ways than those for public companies--for example, a big GAAP-little GAAP scenario?

Seidman: I think there might be cases where a difference in accounting is warranted for private companies. I think there is clearly a need to make standards less complex. I have a question mark in my mind about whether that is a unique private company issue or a small company issue, regardless of whether the company is public or private, or whether that's an issue that many companies share. I have heard loud and clear in our most recent grouping of exposure drafts that people thought our proposals on leasing and revenue recognition were just too complex. I don't view that concern as a private company issue. The comments we got back were virtually identical, from public and private companies here in the United States and abroad. The changes we have made are intended to address those issues.

Having said that, because of the unique capital structure of a private company and because of the difference in the primary users of their financial statements, there might be cases where the accounting should differ as well. I'm going to not definitively answer that question until we've done more work on developing a framework with our constituents that we will use to determine when differences are warranted and why, so that we are not approaching these issues unguided. I would like to have a framework and rationale for approaching the differences, so that we don't just create another expectation gap about when differences are warranted.

Complexity and Codification

CPAJ: Complexity certainly is the killing field for fraud. And that's really across the board for large companies--small companies, public, private, it doesn't really matter. On another note, who do you believe should be responsible for disclosures related to a company's going-concern viability--management or the auditors?

Seidman: Now we're getting into my personal opinion, so I'm going to reframe the question, if I may. What I think we need to do is improve the disclosures that are provided over time related to concerns about a company's viability, so that we are not relying on some special threshold for management or the auditors to say we're in bleak conditions or there is dire danger at a certain point in time.

I personally believe the better approach is to think about what disclosures should be provided to signal various concerns that emerge over time, so that we take some of the pressure off of this very subjective, difficult decision that needs to be made about going concern. I'm not saying there isn't a place in the system for it, but the better focus, in my opinion, is to think more holistically about which disclosures we could require that will signal to investors that there's a brewing problem.

CPAJ: The U.S. GAAP codification process took a lot of time and resources. What, if any, feedback have you gotten on the results of the codification?

Seidman: As a matter of fact, the foundation [FAF], which is now responsible for maintaining the codification--other than the content that we provide, of course--recently did a survey of user satisfaction and received a great deal of helpful suggestions on how to make the codification more useful to people. I do believe that there are some concerns about its search ability. The most common concern I hear is that people want access to the basis for conclusions. So we are looking for ways to make that accessible to people.

But my understanding is that students love it and that more sophisticated practitioners find it helpful to find the relevant GAAP. Of course, it only gives you guidance that exists. As we know, many issues in accounting are judgmental, so the codification can't answer all of your questions, but at least it can pull together all of the existing items in one place so it's easier to analyze.

Challenges and Rewards

CPAJ: Since you took over the reins as FASB chair, what have you found to be the most challenging part of your job?

Seidman: I think a very challenging part of the job is listening to different points of view about what our highest priorities should be. We're currently facing some very significant challenges in the United States with respect to accounting, such as the IFRS issue, trying to serve our private companies well, nonprofit organizations that want their model updated, and other issues on which investors and others would like us to focus. So a challenging part of the job is trying to make sure that we're focusing on the right priorities at any point in time.

CPAJ: And what is the most rewarding part?

Seidman: I strongly believe in our mission, and it is an honor to be at the head of FASB at this crucial point in time, trying to make sure that we're focusing on providing the best information to the users of financial statements in the United States. It's an incredibly rewarding job, day in and day out, to try to make improvements in the information that's going out to the investing public.

CPAJ: Is there anything else that you'd like to share with CPA Journal readers that we haven't addressed?

Seidman: This is an exciting time to be in our profession. There's a lot of change being considered and I always feel it's better to be part of the change, because we'll all be learning something new, and we'll all have new opportunities. I realize that it's challenging to stay abreast of all of these potential changes that are occurring. We're doing everything that we can at FASB to try and keep people informed about what's going on, through enhancements to our website, podcasts, and various e-mail communications.

But if people feel that there are other ways to do a better job at that, I'd really appreciate their suggestions. I'd really encourage people to try and stay involved in the process. We're trying to do a better job than ever in bringing people into the process through our webcasts, where we're offering CPE, and through our outreach, where we're meeting with diverse groups of stakeholders. We really do want to hear what practitioners have to say, so that we end up with standards that people think are not only providing good information, but also can be implemented and audited at a reasonable cost.


Excerpted remarks by Leslie F. Seidman, FASB chair, to the NYSSCPA on October 25, 2011

FASB has been working with the IASB to narrow the differences between U.S. GAAP and International Financial Reporting Standards (IFRS), to foster the goal of someday having accounting standards around the world that result in comparable, useful financial information.

We've already made a significant amount of progress. For example, we have largely converged our standards on business combinations, stock compensation, and nonmonetary exchanges, which together eliminated some of the most significant differences that had been reported by foreign private issuers. Sometimes we made changes to move the United States toward IFRS, such as in the case of business combinations. Sometimes the IASB made changes to move IFRS more toward U.S. GAAP, such as in the case of borrowing costs and segment reporting. We recently issued converged standards on the definition of Fair Value Measurement and the presentation of Comprehensive Income, which will bring greater consistency to reporting around the world.

The remaining priority issues to be resolved under our Memorandum of Understanding (MOU) with the IASB are revenue recognition, leasing, and financial instruments. These topics reflect very prevalent transactions that most companies have, at least to some degree. The goal for all of these projects is to improve both IFRS and U.S. GAAP, rather than using either standard as the starting point. That is why these projects are so challenging--they will apply to almost every company around the world, and investors care about them--so it is very important that we get them right

Together with the IASB, we plan to issue a revised exposure draft on revenue recognition in the next few weeks. Even though most of the changes we made to revenue recognition addressed the comments people made on the first exposure draft (ED), we decided to re-expose our work for quality-control purposes. Revenue is perhaps the single most important line item in financial reports.

I'd like to mention the outreach efforts that we plan to undertake during the comment period. We plan to try a new technique for certain key sectors, where we will hold workshops, and ask companies to prepare before-and-after examples of their common transactions under current GAAP and the proposed standard. This will reveal whether companies understand the requirements and will help identify any unintended consequences. We then plan to use these materials to discuss the results with users of financial statements to help them understand the nature of any changes that may result. We have other forms of field work planned as well, which we view as essential elements of our due process to evaluate the costs and benefits of new standards. We welcome your input and involvement in the process.

On the leasing project, we just held a joint meeting with the IASB in Norwalk, Connecticut, during which we made several decisions relating to lessor accounting. I anticipate that we will hold a few more board meetings, with a goal of issuing a revised leasing exposure draft in the first quarter of 2012. The revised exposure draft will reflect several changes from the original ED, mostly to address concerns about complexity and several other matters. Our decision to re-expose the leasing document has been well received, because people want an opportunity to look at the revised conclusions in the context of the standard as a whole....

On financial instruments, most people think impairment is the most important issue that we should be working on in response to the financial crisis. It is a very high priority of both boards to come to a converged solution that will be widely recognized as an improvement in reporting. We are developing an approach based on expected losses, rather than probable incurred losses, which will reduce the barriers to timely loss recognition. We made progress at our joint meeting, and we are working hard to address the remaining issues at a determined pace. ...

As I look at the Memorandum of Understanding projects, I think ifs clear that some have been more successful than others. Why? What are the factors that have led to success and what are the ones that have deterred the two boards from agreeing? I believe that we have been successful when we have--

* agreed upon clear objectives;

* fully integrated our staff teams;

* conducted deliberations and outreach jointly; and

* coordinated our timing.

In those instances in which our objectives have been unclear and when we have pursued the standards-setting process at different times, we have been less likely to reach consistent conclusions. It's not just inconvenient and no doubt confusing for stakeholders; it undermines the goal of having a common reporting language. I believe those observations will prove helpful as we continue our goal of working cooperatively to develop high-quality, comparable international accounting standards.


Excerpted remarks by Leslie F. Seidman, FASB chair, to the NYSSCPA on October 25, 2011

The issue of whether and how the United States should move to incorporate international Financial Reporting Standards (IFRS) has been in the news a lot lately, both here and abroad. Some articles suggest that support is growing in the U.S. for a longer and more gradual transition. Others speculate about the timing of a decision by the SEC, which has said in the past that it would take some type of action on the IFRS incorporation issue before the end of this year.

I'm not in a position to predict what the SEC will do or when they will do it. But what I can do is to share my perspectives about where we are today and discuss the issues that I believe we as a country will need to address as we move forward with this important initiative. ...

As standards setters work to achieve more comparable global accounting standards, it is important to recognize three key points:

* The United States has put in place over the past 80 years a set of high-quality accounting standards in the form of U.S. GAAP. This has been achieved through the efforts of the SEC (since the enactment of the 1933 Securities Act), the state boards of accountancy, a rigorous auditing profession, and the independent standards-setting activities of FASB and the organizations that preceded it.

* U.S. investors, preparers, auditors, users of financial statements, and other stakeholders want to have a strong, clear, and effective voice in the standards-setting process. I am happy to say that U.S. stakeholders, including the people in this room, care about accounting and want to actively participate in the process.

* Any move toward international standards must maintain or improve upon the high quality of U.S. accounting standards.

The staff of the SEC in May circulated a staff paper outlining one framework--"condorsement"--under which the United States could move toward adoption of IFRS, as promulgated by the IASB.

I think the condorsement process outlined by the SEC staff has many positive aspects. First, condorsement shows U.S. support for the ongoing development of global accounting standards.

Second, condorsement adopts the very practical approach of retaining the label "U.S. GAAP." In other words, regardless of the way IFRS is brought into the U.S., it's easier on the system if it's called U.S. GAAP for federal and state legislative and regulatory purposes, contractual covenants, and those kinds of things.

Third, condorsement calls for some level of U.S. involvement in the establishment of any new standards. When I look at the letters that have come into the SEC, most people feel very strongly that they want to continue to have active participation in the process themselves as stakeholders, but also that FASB should continue to have a strong role in influencing what goes on the international agenda, the process by which these issues are analyzed, the level of implementation guidance provided, and the outreach that is conducted in the U.S. is this isolationist? I don't think it is. I think it is an acknowledgment that if we want a global standard that the U.S. follows, it has to work here, in our environment, and we can work cooperatively to bring those insights to the discussion on a timely basis. I believe there are other countries around the world that also would seek substantive roles for their national standards setter in the process, such as Japan. I think there is a way to leverage the national processes and resources that exist, and with proper coordination, bring them to the development of international standards.

Fourth, condorsement recognizes that there should be a gradual approach to dealing with the remaining differences between U.S. GAAP and IFRS. We're in a very different position than a lot of other countries that have gone through this endeavor, and we need to go through a thoughtful exercise to look at those differences and determine the best course of action for the U.S. ...

Assessing the Differences

I would look at the remaining differences and ask: Are these differences important? Clearly, some of them are. For example, the difference between U.S. GAAP and IFRS on research and development is a core issue for some companies and their investors. I think this difference must be addressed. Likewise on recycling amounts out of other comprehensive income to net income; U.S. GAAP does, IFRS does not (usually). This is a very important issue to investors. On impairment losses for hard assets: IFRS reverses if a recovery occurs, U.S. GAAP does not. This is an important difference that must be resolved.

Some other differences seem less important from a decision-making standpoint, however. For example, does it really affect an investment decision if we depreciate things differently? If not, it might not be worth the systems costs of doing the conversion, at least not as a high-priority item.

There also are differences in the way the international standards are applied, and it is important to understand why. If there is ambiguity in the standard, we can fix that. If there are differences in the way standards are complied with around the world, that would seem to require coordination among international auditors and regulators, which seems to be gaining some recent traction. But if the resulting information is not reasonably consistent--for whatever reason--it calls into question whether the benefit is real and whether the costs are justified. The SEC staff has said it plans to issue a report on the consistency of application of IFRS in the near future, which should shed some light on this issue. ...

Much has been said about the threshold that FASB would use to endorse the standards set by the IASB under a condorsement approach. First, let me state that if the U.S. has an active, substantive role--from the beginning of the process through the end--I think it increases the likelihood that a standard would ultimately be endorsed by the U.S.

Second, the way I would think about endorsing any standard for the U.S. would be: Was the process conducted in an independent manner that considered the Conceptual Framework and the views of U.S. investors and other stakeholders? Will this standard represent an improvement in information for the users of financial statements in the U.S.? Can U.S. preparers apply the standard consistently and at a reasonable cost?

I think we would need to have a serious concern about the process, the usefulness of the information in the U.S. environment, or about the operationality of the proposed standard for us to not endorse the standard. This would not be a mere matter of personal preferences.

I see the role of FASB as very much facilitating that kind of approach. We would help our country understand what changes are being proposed, gather their input, and be a strong voice in the process to make sure we end up with standards that benefit U.S. investors, preparers, auditors, and other stakeholders. One thing I am encouraged to see is that the IASB has said that they will step up their interpretive function which is another issue that many people raised in their letters to the SEC.


Excerpted remarks by Leslie F. Seidman, FASB chair, to the NYSSCPA on October 25, 2011

The Financial Accounting Foundation's (FAF) board of trustees recently issued for public comment a plan to establish a Private Company Standards Improvement Council. The intent is to better address the financial reporting needs of lenders, investors, and other users of private company financial statements, as well as the concerns of private company preparers and auditors. All seven FASB board members view it as a priority to respond to the significant concerns that have been raised.

Let me start with people. We've put in place an expanded professional staff to address private company issues, and these individuals are part of every project team. We also added a FASB board member with a private company preparer background, and another board member with significant experience investing in and auditing private companies. We have taken steps to bolster the private company voice in Norwalk. We have also significantly increased our outreach to private companies and taken other steps to make private company concerns an integral part of every standards-setting deliberation we undertake. ...

Based on specific feedback from private companies, we started a webcast educational series where we offer CPE. We used a web-based short form to gather feedback on a recent exposure draft, in response to concerns from private company practitioners that they don't have time to write a long comment letter, which we plan to use on our upcoming exposure drafts. We have held short podcasts on every major proposed and final change in accounting so people can quickly assess their level of interest and the nature of the changes.

We have modified our effective dates on most standards to allow more time for private companies to learn about the changes and adopt them. We issued an article describing what we heard from stakeholders about the unique circumstances and perspectives of private companies that might warrant differences in accounting standards. We plan to use this information to develop a framework for evaluating differences for private companies. ...

A great example of how these process changes affected the standard is our recent standard on goodwill impairment testing. That project grew out of concerns we heard from users and preparers of private company financial statements at a series of roundtables we hosted last year. These private company constituents shared the view that testing for goodwill impairment was too complex and expensive, and they offered us good advice on how to simplify the process without reducing the resulting information set

As we considered those comments, it became clear that this was an issue that went beyond private companies. As a result, we undertook a project intended to simply the calculation of goodwill impairment for all constituents, which we started last December and completed this September. The amendments approved by the board will reduce complexity and costs by allowing a company--either public or private--to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it needs to calculate fair value to actually measure the impairment.

Another important example of how feedback from private company constituents directly affected the results is our recently completed project on multiemployer pension plan disclosures. Two of the industries in which these plans are widely used--construction and transportation--are dominated by companies that are privately owned. While many stakeholders supported FASB's efforts to enhance disclosures about an employer's participation in multiemployer plans, some did not believe the board's initial exposure draft struck the right balance between the costs that companies would incur to prepare the disclosures and the benefits that users would derive. The board listened and made significant adjustments to the original proposal as a result of the feedback from private company constituents and others. ...

The New Private Company Council

I believe the private company plan proposed by the FAF trustees will build on and augment the efforts that FASB already has undertaken to address private company issues. By establishing a standing council, with separate oversight by our trustees, I think it alleviates the concerns I have heard about the changes we have made being temporary rather than being embedded in the structure and processes of the organization.

Under the proposed plan, the new Private Company Council would identify, propose, deliberate, and formally vote on specific exceptions or modifications to U.S. GAAP for private companies. It would look at old standards as well as the ongoing standards being set by FASB. These deliberations would be conducted in meetings attended by members of FASB, who would ratify any changes put forward by the council. The process being proposed is quite like the Emerging Issues Task Force (EITF), but the scope of the mission is different and broader.

Creation of the new council would represent a major step forward in the standards-setting process for private companies, and will build on the work of the Private Company Financial Reporting Committee (PCFRC), an advisory group that was created in 2006. The PCFRC made important progress in representing the interests of users, preparers, and auditors of private company financial statements, but frankly, I believe that the effort was not wholly successful in two respects. First, the PCFRC and FASB did not develop a common understanding or framework for considering when exceptions or modifications to U.S. GAAP for private companies are appropriate. Second, the two organizations did not integrate their people or operational processes. I think it is crucial to have common objectives and coordinated teams and processes to ultimately agree on the best way to solve a problem.

In retrospect, our approach to setting up the PCFRC was not a recipe for success. However, the trustees' plan would directly address both of these issues. Creating a separate standards setting board for private companies under the auspices of the FAF was one of the recommendations made earlier this year by the Blue Ribbon Panel on Private Company Financial Reporting.

The trustees' proposal has generated heated criticism in some quarters, largely because the trustees felt it was important to maintain FASB's role as the sole standards-setting board for U.S. GAAP through the ratification mechanism. But what has been overlooked in the debate thus far is that the trustees adopted virtually every other recommendation that the Blue Ribbon Panel made.

The Blue Ribbon Panel called for creation of a new body, under the supervision of the FAF trustees, which would ensure that appropriate exceptions and modifications are made to U.S. GAAP for private companies. The Blue Ribbon Panel recommended development of decision-making criteria to enable standards setters to determine whether and when exceptions or modifications of U.S. GAAP for private companies are warranted. The panel called for a comprehensive review of the new board's work in three to five years. And the Blue Ribbon Panel called on the trustees to include issues related to private companies in its new post-implementation review process. Each of these recommendations was included in the plan issued by the trustees.

After meeting with many stakeholders and weighing some divergent views, the trustees decided against the idea of creating a second standards setter for private companies because they believed that setting up such a board could, over time, lead to more significant differences between the standards for public and private companies.

Reasonable people disagree about accounting matters. It is hard enough to get FASB members to agree; trying to get two independent organizations to agree is demonstrably difficult, despite strong commitment to the goal. Adding a third organization to the mix makes it even harder, and adds unnecessary complexity, in my opinion. ...

The trustees are seeking comments on the proposal through January 14, 2012.1 would urge you to share your comments, so that the trustees can benefit from your thoughts on this matter--a matter that is of vital importance to us as accountants as well as to our ultimate customers, the users of financial statements.

An Interview with Leslie F. Seidman, FASB Chair
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Title Annotation:In Focus; Financial Accounting Standards Board
Author:Kranacner, Mary-Jo
Publication:The CPA Journal
Geographic Code:1USA
Date:Dec 1, 2011
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