FASB News
Effort to Refine U.S. GAAP’s Definition of a ‘Liability’ Continues.
FASB’s latest effort to update its Conceptual Framework is focusing on the building blocks of the financial statement, particularly the definitions for assets and liabilities. In August 2017, the accounting board got close to a working definition, tentatively agreeing that a liability is “a present obligation of an entity to transfer an economic benefit.” But FASB did not finalize its decisions, and since then, financial reporting professionals have questioned the board about how the simpler definition will work. At its June 27 meeting, the board discussed how to distinguish between a present obligation and a business risk and how a present obligation can be created. Board members debated the circumstances that might create a present obligation, aside from a contract or law, and whether its concept of “standing ready” to complete an obligation requires modification. “The board that set that language probably tried really hard. I think we’ve tried really hard for decades since then to figure out: can we do a better job of precisely describing the fine line that gets you from constructive obligation to constructive obligation,” FASB Vice Chairman James Kroeker said. FASB Chairman Russell Golden concurred. “I know we’ve worked on this for a number of years, and I think what we have is as good as it’s going to get,” Golden said.
GASB News
Requirements Established for Reporting Construction Project Interest Costs.
GASB has issued guidance to establish accounting requirements for the interest costs incurred before the end of a construction period. The board says the amended guidance simplifies the accounting for interest costs that are incurred while a project is under construction. The board also believes the guidance makes it easier to compare information about capital assets and borrowing costs for government activities and business-type activities by state and local governments. The accounting changes will be effective for reporting periods that start after December 15, 2019, GASB says, but the board is encouraging state and local governments to adopt the changes ahead of the effective date. The board says the new accounting should be adopted through what it calls the prospective method of application, which does not require alteration to financial results of prior reporting periods to reflect the change to accounting.
SEC News
Democratic Senators Seek Review of Stock Buyback Rule.
Twenty-one Senate Democrats have asked the SEC to review the rule governing stock repurchases. The request to review how companies use Rule 10b-18 of the Securities Exchange Act of 1934 appeared in a June 28 letter to SEC Chair Jay Clayton. The effort was led by Senator Tammy Baldwin of Wisconsin, who has been among the more vocal members of Congress to criticize the trend toward buybacks of the past few years. The other 20 senators who signed the letter included Senate Minority Leader Chuck Schumer and Senator Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, which oversees the SEC. No Republicans signed the letter. “The explosion of stock buybacks has funneled corporate profits to wealthy shareholders and corporate executives instead of workers and long-term investments that spur economic growth,” the senators wrote. The senators are especially concerned with the surge in buybacks at a time when companies are enjoying lower tax rates from the Tax Cuts and Jobs Act enacted in December 2017. The law allows U.S. companies to repatriate cash at a reduced tax rate of 8% for a limited time. The old rate had been 35%.
