Most Investors Don’t Voluntarily Weigh-in on Key Topics
FASB has to go beyond the norm to reach investors for input about accounting topics, a key part of its process, because “very few” typically respond to board proposals, Chair Richard Jones said. Investor input is a key part of the board’s mission to provide useful information for capital allocation and investors are involved throughout the board’s standards-setting process, he said in a February 7 video update. But much of that involvement stems from the board’s own efforts, as opposed to investors reaching out, according to Jones’ remarks. Last year, the board received over 1,000 comment letter responses from financial statement preparers, almost 500 from practitioners, “but we’ve received very few from investors,” he said. “That means we need to take some additional steps and those steps are really FASB-initiated outreach with investors.” The board initiated over 430 interactions with investors in 2021. Outreach was aimed at obtaining investor input not only on projects currently on the board’s agenda, but also on future projects. “That’s how we make sure that the investor’s voice is heard throughout our standard-setting process,” said Jones. The issue is especially critical to FASB’s mission. “Without hearing from investors and without that interaction with investors it’s pretty hard to accomplish that on providing the most decision-useful information,” he said. “Investors are a key part of our process and they’re involved throughout our process.”
Certain Asset Acquisitions under Credit Loss Accounting Rules Moving to One Model
FASB said it would expand the model for credit losses that meet the definition of purchased credit-deteriorated (PCD) assets so that it applies to assets acquired in both business combinations and asset acquisitions, with some exceptions. The decision would change what is currently required, as credit loss rules make the distinction between PCD and non-PCD assets, though both business combinations and acquired assets result in most financial assets being recognized at fair value upon acquisition and investors do not differentiate between them. The PCD model, though not perfect, is more intuitive, according to the discussions. “It would address investors’ concerns that they just don’t see the economic reality of non-PCD accounting—day one double loss and then inflation of the yield, it’s not useful,” FASB member Gary Buesser said. Exceptions to the change would include certain credit card receivables and available for sale (AFS) debt securities, as it would be burdensome to apply and not result in useful information, discussions indicated. Board members asked staff to research whether trade accounts receivables should also be exempted. “I wouldn’t want someone like a cell phone provider to have to apply the PCD model to acquire cell phone receivables and then apply CECL to that model post-acquisition in the same account balance,” FASB Vice Chair James Kroeker said. “I think just making sure even if we think they’re separate credit decisions do we want to have a model that applies two models to the same account balance.”
Cities, States Getting Three New Standards by Mid-Year
GASB will issue three new accounting standards plus a concepts statement in the first half of this year, Chair Joel Black said in a February 4 video update. New statements will be issued on accounting changes and error corrections, omnibus 2022, and compensated absences, as well as a concepts statement on the disclosure framework, Black and Technical Director Alan Skelton said. The provisions for accounting changes and error corrections revise rules on prior-period adjustments, such as changes in accounting principle and accounting estimate. Specifically, it will revise guidance in GASB Statement 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. “It’s not necessarily about it being old but rather common problems people have categorizing these as ‘where do I put a change in an estimate measurement methodology, is that a change in principle or a change in estimate?’,” said Black. “Plus we’re dealing with a new category called changes in the financial reporting entity for which we commonly get questions on.” GASB, which develops U.S. GAAP for state and local governments, also plans to issue its latest round of omnibus technical corrections and practice issues, according to the update.