Disclosure Framework Slated for September Publication
FASB’s planned concepts statement aimed at improving how the board writes disclosure requirements for U.S. GAAP is scheduled for publication in September, FASB Chairman Russell Golden said on June 8. Speaking at a meeting of the board’s Financial Accounting Standards Advisory Council (FASAC), Golden said the board would not publish the disclosure framework until it issued its separate, more high-profile update to insurance accounting, which is slated for publication in August. In May, a 5–2 majority of the board agreed to publish the disclosure framework, which the board plans to use as a reference guide when it draws up requirements for disclosures in accounting standards. Through a set of questions and objectives to consider, the goal of the guide is to help FASB establish a consistent philosophy for setting disclosure requirements, balancing the right amount of detail without inserting cluttering the notes to the financial statements.
Renewed Effort to Simplify Liabilities, Equity Accounting Gets Underway
On June 6, FASB took its first steps on an effort to sharpen the accounting distinction between liabilities and equity, an area of financial reporting long riddled with complexity and a major cause of financial statement restatements. The board directed its staff to do more research on two areas: accounting for convertible instruments with embedded conversion features and determining whether instruments are indexed to an entity’s own stock. FASB members called its approach the “no separation” path. “I think separation is a brilliant idea, except I never understood it; I could never associate the separated parts with the whole transaction,” FASB member Harold Schroeder said. “As an investor, you want to have a common starting point, and I think there’s no common starting point. You don’t understand why the product is designed the way it is because you can’t relate it. Disclosures today are so poor—even the best disclosures provide you very little information about relationships. I wholly support the ‘no separation’ approach.”
Technology Task Force to Examine Role of Data Analytics and Artificial Intelligence in Audit Work
The PCAOB’s Data and Technology Task Force has picked data analytics and artificial intelligence as its initial topics for gauging the effect of technology on audit work. The PCAOB put the role of technology in audit work on its research agenda at the end of 2016, seeking to determine if the rising use of technology requires amended standards. The group plans to assess other technology topics and consider investigating them in greater depth when it meets later this year, said Patrick McNamee, a deputy chief auditor, during the June 5 meeting of the PCAOB’s Standing Advisory Group (SAG) in Washington. “The task force members have commenced a deep dive on these two topics of data analytics and artificial intelligence to be able to answer several dozen or so research questions,” McNamee said. The task force is also looking for real-world examples to illustrate the two issues and the challenges they pose for auditors trying to comply with PCAOB guidance.