Business Combination Rule Could Change
FASB is examining whether to change the rules regarding accounting for business combinations with respect to the subsequent reporting of contingent consideration, which refers to the transfer of cash or stock to an acquired company if certain conditions have been met. The board could potentially align the subsequent accounting for contingent considerations with the accounting for asset acquisitions—a better model, according to discussions held on May 26. No standards-setting decisions were made, but board members offered views about what investors would want. “Trying to bring it back to what investors want in terms of decision-useful information, the outreach we did which clearly was limited, but it was consistent that investors want the contingent consideration at fair value and they want the models for business combinations and asset acquisitions aligned,” FASB member Gary Buesser said. “They believe it provides them with useful information, they also want improved disclosures on maximum payout, timing of payout. All the information goes into understanding what a company has bought, either a business or asset.”
Deputy Secretary General of Intergovernmental Economic Group Appointed as Trustee
The IFRS Foundation appointed Masamichi Kono a trustee, effective July 1, 2021, the organization said. Kono is currently deputy secretary general of the Organization for Economic Cooperation and Development (OECD), where he sets the strategic direction of the organization’s policy on environment, tax, trade and agriculture, along with leading financial and enterprise affairs. He oversees initiatives on infrastructure and sustainable growth and represents the OECD at the Financial Stability Board. Kono has also served as chairman of the International Organization of Securities Commissions (IOSCO) Technical Committee, and thereafter as chairman of the IOSCO Board. He was also co-chair of the Financial Stability Board’s regional consultative group for Asia and Chair of the IFRS Foundation Monitoring Board from 2013 to 2016. Kono has held senior and executive roles at the Ministry of Finance and the Financial Services Agency of Japan. His career has spanned more than four decades “and he has a wealth of regulatory, supervisory and policy experience in national authorities and international organizations overseeing global financial institutions and markets,” the foundation announced on May 28.
Proposed Overhaul to Accounting Rules for Making Changes, Correcting Errors
GASB has issued a proposal to revise the accounting rules for making changes and correcting errors so that the resulting financial information in governmental reports can be more easily understood. The proposal aims to eliminate the reporting differences among state and local governments that emerged under the current, 59-year old rules, including in picking the appropriate category for reporting an accounting change or error correction. To implement some consistency, the board proposed changes to three main areas:
- Description—to better explain categories such as principles, estimates, and financial reporting entities clearer so that financial statement preparers can easily understand in which category to place an event so that the appropriate accounting is followed.
- Display—preparers would show the totality of the adjustments and restatements on the face of financial statements, a change to allow financial statement users to quickly understand that one of those events has occurred.
- Disclosure—requirements that entities describe and provide tabular information by reporting unit for each instance of accounting change or error correction, enabling users to understand the nature of each event, the reporting units affected, and the amounts involved. This change would be especially helpful when a government has more than one accounting change or error correction in a particular reporting period, the board said.
“Users want information that’s easy to find and easy to understand, and I think the proposed changes to description, display, and disclosure will help achieve this, which will enable decision-making by those users based on their particular needs,” GASB Vice Chair Jeff Previdi said in a board podcast. Comments are due by August 31.