For the last seven years, Russell G. Golden has served as FASB’s chairman. During this time, and for the nine years previously, he has seen the standards setter face numerous challenges in its mission to improve the quality and reliability of financial statements. As he nears the end of his term, Golden reflects on his and the board’s accomplishments in serving FASB’s diverse set of stakeholders, reducing the complexity of standards, and working to align U.S. and international standards.
Even in the relatively staid world of public accounting, 90 years is something to celebrate. Its longevity speaks volumes about The CPA Journal’s high standing in our profession, and I’m honored to help it recognize this important milestone.
Speaking of milestones, I’m about to experience one of my own. On June 30, I will conclude my seven-year term as chairman of FASB. It will mark the end of a decade on the board and a 16-year career with the organization. It’s been an honor to serve on FASB and to work with stakeholders—including fellow CPAs—around the country.
New York Yankees catcher Yogi Berra once said, “If you don’t know where you’re going, you might not get there.” Each FASB chairman seeks to make the standards-setting process better, and each faces unique challenges to achieve that goal. When I became chairman in 2013, FASB was at a tipping point. The new Private Company Council (PCC) had been in existence for six months; major standards on revenue recognition, leases, and credit losses were almost complete; and we were winding down our bilateral convergence projects with the IASB.
The challenges we faced in 2013 forced us to seek new approaches to our work and resulted in better decisions and better standards—or, as we like to call them, standards that work. To get there, I set three main goals as chairman:
- Create a more customer-centric culture that serves all stake-holders, not just some.
- Reduce, where possible, the complexity and cost of accounting standards without compromising the quality of information provided to financial statement users.
- Reinvent our role on the international standards-setting stage.
Serve All Stakeholders—Not Just Some
The quest to serve all stakeholders was a top priority. It fueled a cultural evolution at FASB—one that acknowledges the differences among our many stakeholders.
Before the PCC was created in 2012, FASB approached our work on the premise that all stakeholders—public companies, private companies, and not-for-profit organizations—are the same. Of course, this is not the case, and the PCC and other stakeholders let us know it. It caused us to re-evaluate how we engage with all constituent groups—not just private companies, but also public companies of all sizes, not-for-profit organizations, and employee benefit plans.
Our work to improve goodwill impairment provides a good example. PCC members shared private company concerns about the cost and complexity of the goodwill impairment test. Private company financial statement users told us they rarely considered goodwill and goodwill impairment losses when analyzing a private company’s financials. Based on this user input, FASB issued an accounting alternative that allows private companies to amortize goodwill and apply a simplified goodwill impairment model.
But private companies weren’t the only ones who questioned the relative usefulness of the existing goodwill impairment model; not-for-profits and public companies voiced similar concerns, and we looked for ways to extend those improvements to these groups.
In May 2019, we issued a new standard, Accounting Standards Update (ASU) 2019-06, Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities, which extends the PCC alternative for goodwill and for measuring certain identifiable intangible assets to not-for-profit organizations. In addition, we are in the middle of evaluating input received on our Invitation to Comment on a broad project on the subsequent accounting for goodwill and the accounting for certain identifiable intangible assets for public companies.
We also improved how we support companies and organizations throughout the process of implementing our standards. For example, we created an implementation web portal that provides a “one-stop shop” of educational materials for major standards (http://bit.ly/2m9NDms).
In November 2019, we delayed effective dates for our standards on leases, credit losses, hedging, and long-duration insurance contracts for private companies, certain small public companies, and not-for-profit organizations. This is part of our new effective date philosophy, in which large public companies will be required to implement major standards first, followed by all other organizations up to two years later. We did this because we realized that private companies and other organizations could learn from the experiences of public companies, and that staggered effective dates would not negatively affect financial statement users. More recently, due to the COVID-19 pandemic, we also proposed effective date delays for the leasing standard for private companies and organizations, and for revenue recognition for private company franchisors.
Reduce Unnecessary Complexity in Accounting
Financial statement users—our primary stakeholders—demand relevant information that helps them make sound investment decisions. Preparers and auditors supply that information using accounting standards as the conduit. Accounting standards can facilitate the smooth flow of information, or they can hinder it; when they hinder it, complexity is usually the culprit.
We did this because we realize that private companies and other organizations could learn from the experiences of public companies, and that staggered effective dates would not negatively affect financial statement users.
For investors, overly complex financial reports often obscure important information they need. For preparers, a complicated, unclear, incomprehensible standard obscures its meaning. And even when an accounting treatment is clear, applying it can be lengthy, difficult, and expensive.
To address these problems, FASB dove into our agenda. We reassessed our priorities and eliminated less important projects, and we added a mix of new projects to help us deal with complexity issues on two fronts. That mix included foundational and simplification projects.
Foundational projects—those that contribute to our conceptual framework—define long-term standards-setting goals over time. They help keep us focused on critical issues that are most important to stakeholders and form the basis of what we do and how we do it.
I would love to say that we completed the conceptual framework, but we didn’t. That said, we are much closer to this goal than we were in 2013. We’ve added new chapters to the conceptual framework to help us improve the effectiveness of disclosures in notes to financial statements, including a chapter to help FASB decide which disclosures to require in the notes to the financial statements. This gives the board more clarity on when we should—or shouldn’t—require certain disclosures.
Currently, our agenda includes active conceptual framework projects on measurement, presentation, and elements. Elements of financial statements include assets, liabilities, revenue, expenses, and gains and losses. These are areas that have not yet been adequately addressed in the framework, and they need to be. When they are complete, they will contribute to more consistent decisions from future boards.
In addition to foundational projects, we added to our agenda a series of short-term simplification projects that target areas of immediate improvement. Our stakeholders identified these narrow-scope projects as opportunities to simplify GAAP in a relatively short time period. We added them because we could reduce complexity for preparers without adversely affecting the quality of information provided to investors.
Since 2014, we have simplified accounting for discontinued operations and development stage companies, as well as other organizations. We have also simplified the measurement of inventory, the determination of extraordinary items, the presentation of debt issuance cost, and the measurement date of defined benefit plan assets.
Develop a New International Model
Our work with the IASB has produced many successes. Business combinations, noncontrolling interests, fair value measurements, borrowing costs, segment reporting, stock compensation, nonmonetary exchanges, and revenue recognition are just some of the areas where we have improved and aligned standards.
By 2013, however, we had come to realize that the ideal of a single set of high-quality global accounting standards was just that—an ideal. Different starting points, different cultures, and different legal systems made bilateral convergence impossible to achieve.
I believed then, and still do, that more comparable global accounting standards help reduce complexity and costs in financial reporting—costs that are often borne by U.S. multinational corporations. But we needed a new path to successfully improve financial reporting for U.S. capital markets and promote and enhance the quality, comparability, and consistency of international financial reporting.
We did—and are doing—this in three ways:
- Through the development of high-quality GAAP
- Through active participation in the development of IFRS through membership on the Accounting Standards Advisory Forum
- By enhancing relationships and communications with other national standards setters.
In addition to our work with the IASB, we meet regularly with standards setters from Canada, Japan, Italy, China, South Korea, Australia, France, the United Kingdom, and other nations to exchange ideas on improving our respective standards. This has helped promote the broader flow of information and ideas that mutually inform our thinking and contribute to an environment that will foster greater alignment of standards across the globe.
As my term as chairman winds down, I am often asked, “What does the future of standards setting hold?” That’s up to future boards. But I strongly suspect that the outstanding members and staff of FASB will continue to successfully address new financial reporting challenges for all U.S. stake-holders in collaboration with other standards setters around the globe.
One thing I am sure of is the need for CPAs’ continued involvement in the standards-setting process. Your views are essential to FASB’s ability to make sound decisions that benefit all capital market participants. I thank the profession for its ongoing support of FASB, its standards-setting activities, and my tenure as chairman.
Major Standards Issued during Russ Golden’s Term
- Revenue recognition
- Current expected credit losses (CECL)
- Derivatives and hedging
- Not-for-profit financial statements