Government Involvement in New Areas Needs Study for Project on Grants Rules
New areas of government involvement not seen in the past might be deemed as government grants—and therefore FASB needs to carefully define the scope of any project it tackles on the topic, according to discussions by the Private Company Council (PCC). “I do think it’s continuing to be interesting in our society to see how government is involved in things that they haven’t been involved with in the past,” Robert Messer, senior executive vice president, chief financial officer–chief risk officer at American National Bank of Texas, said on April 22. “I don’t know that these will fall under the definition of grants, but I sure think we should be thoughtful in thinking about that because I think some guidance in that area could be very, very important,” he said. The government’s involvement has increased in new areas, and that has created uncertainty about whether a transaction should be accounted for as a government grant, according to the discussions. “To the comment made by Robert [Messer] about the government being more involved in more things than they have before, I think just the amounts of these cases are certainly increasing,” Douglas Uhl, principal team leader, corporate accounting policy at Chick-fil-A, Inc., said. “As far as some areas where some additional information will be helpful, scope is one area I think there’s some things that pop up where a lot of times it’s not super clear if it falls within the scope or not.”
Too Early to Pinpoint ESG Accounting Issues for Private Companies
It is still too early to address environmental, social, and governance (ESG) accounting issues for private companies because no prevalent problems have yet been spotted, according to FASB’s Private Company Council (PCC). Private companies have not bumped up against accounting issues related to financial instruments with ESG-linked features, an area the FASB is researching, though there is much buzz around ESG broadly, the PCC told the board on April 22. So far the one instance of an ESG-related issue involved penalties as opposed to an accounting discrepancy. “I would say my one experience with it has been with a credit rating agency that did lower a rating on some bonds because of ESG—specifically environment and turnover in lead management,” PCC Chair Candace Wright said. “So it was the first time I has seen it and that was recent and I’m sure that this is going to become more prevalent and these types of instruments are going to become more prevalent and trickle down into a lot of the private company space in a relatively short period of time.” Banks have been discussing the topic of ESG with borrowers and regulatory agencies to gauge their thinking, but most view it as an early-stage trend that will develop in time, PCC discussions indicated.
Summary of Research on Pension Benefits that Depend upon Asset Returns
The IASB has published a summary of its research efforts that aim to amend the accounting rules for pension benefits that depend on asset returns. The research is information other national accounting standards-setters would find useful in establishing their five-year technical agendas. Between 2018 and 2021, the IASB researched the feasibility of amending International Accounting Standard (IAS) 19, Employee Benefits, with respect to pension benefits that depend on asset returns. Such benefits depend upon the performance of specified assets, such as shares or bonds (reference assets), according to the summary. The IASB researched an approach that would cap the estimated cost of providing this type of pension benefit by applying the discount rate required by IAS 19 (as opposed to the expected rate of return on the reference assets) when that discount rate is lower than the expected rate of return on the reference assets (capped approach). The board decided not to develop amendments to IAS 19, because its research did not find enough evidence of pension benefits that depend on asset returns being widely offered across jurisdictions.