Concerns Resurface over Corporate Stock Buybacks
FASB should appoint a study group to determine the proper accounting and reporting of the financial results from stock buybacks, billions of dollars that public corporations spend with little accountability to shareholders, according to comments from a former NYSSCPA vice president to the board. Stock buybacks are used by some corporations as way to reduce the number of shares outstanding, increase earnings per share (EPS), and in turn boost stock price. “In practice, those intended results do not necessarily occur,” Richard Hecht of Audubon Consulting Group LLC in New York said in an August 12 letter to the board. “There is no accounting or reporting standard that has been established by the FASB to inform shareholders of the financial results of stock buybacks.” The topic is not new, and it is somewhat controversial, as some market watchers have argued that managements use stock buybacks as a method to bump up stock price and the compensation of top executives and directors. Billions of dollars are typically spent annually: $866 billion in 2018 and 2019; $519.7 billion in 2020; and as of May 7, 2021, $504 billion, according to published reports. Hecht’s letter was in response to the FASB’s June Invitation-to-Comment (ITC) 2021-04, Agenda Consultation, issued to solicit public comment about the board’s future technical agenda. Companies have until September 2022 to submit comments.
Banks, Financial Institutions Support Proposed ‘Multi-Layer’ Hedge Accounting Rules
The banking sector wants FASB to quickly finalize its recently proposed hedge accounting changes, flexible guidance more closely aligned with their risk management strategies. Although the scope of the proposal should ideally be broadened to include prepayable liabilities and non-prepayable financial assets, the rules would be a good step because they are simpler and would enable banks to elect hedge accounting in more instances, said Joshua Stein, vice president–accounting and financial management at American Bankers Association, on August 11. “The proposed portfolio method will allow them to elect hedge accounting and for more hedging strategies, including the use of multiple hedge instruments for a pool of prepayable assets,” he said. In a July 5 comment letter to the board, Stein also suggested eliminating the proposed “follow the asset approach” for breaches, i.e. when the aggregate amount of the hedged layers within a closed portfolio exceeds the total amount of the related portfolio.
IFRS Interpretations Committee Names Three Members
On August 17, the Trustees of the IFRS Foundation on named three new members to the IFRS Interpretations Committee: Andre Besson, Karen Higgins, and M P Vijay Kumar. The committee works with IASB to support the application of IFRS. The appointments become effective immediately and run through the end of June 2024. The three new additions replace Johnsoo Han, Robert Uhl, and Bertrand Perrin. Perrin joined the IASB as a board member in July, while Han and Uhl ended their terms at the end of June. Besson, Nestle SA’s Head of Financial Reporting Guidelines, co-chairs SwissHoldings’ Working Group on Accounting and Reporting. Higgins, former vice-chair of the Canadian Accounting Standards Board, is a Deloitte audit and assurance partner. Kumar, CFO of the Indian technology company Sify Technologies, chairs the Institute of Chartered Accountants of India’s Accounting Standards Board.