Amortization of Goodwill Will Heighten Non-GAAP Usage, Panel Says
FASB’s tentative decision to require companies to amortize goodwill amounts will not provide investors with better information when they need it most: during an impairment charge, according to a panel discussion. Investors will likely ignore the amortized goodwill sums and instead focus on non-GAAP measures, Mark LaMonte, managing director at Williams Marston LLC, said during a “Hot Topics at the FASB” discussion at the 20th Annual Baruch College Financial Reporting Conference on May 5. His response was to KPMG Partner Kimber Bascom’s question about what financial statement users look for in goodwill and impairment charges and whether the direction FASB is headed in is likely to make that more informative or efficient. “There’s no great answer here,” LaMonte responded. “Impairment charges are more often than not a trailing indicator of problems at a company,” he said. “Investors and users are usually out ahead of kind of knowing that’s coming, knowing there are problems before impairment charges are taken. [That said] beginning to amortize goodwill is also going to be widely ignored by investors and users,” LaMonte added: “It’s going to increase the focus on EBITDA [earnings before interest, taxes, depreciation, and amortization]–type measures that back that out; will make [earnings per share] type measures less relevant—so there’s no great answer here,” he said. “Goodwill is largely ignored, as well as the amortization of that goodwill.”
Discussions on ESG Research, Tax Disclosures Begin
FASB’s May 11 meeting included discussions on initial staff research on financial instruments with features linked to environmental, social, and governance (ESG) issues. The board will discuss the research to prepare for a future discussion on whether to add a project to its technical agenda, according to a May 5 board alert. The topic landed on the board’s radar last year during outreach about its rulemaking priorities for the next five years (2022 to 2026). So far, the board has signaled it would address ESG narrowly, as three separate topics that include a gamut of issues, much of which goes beyond its rulemaking purview. “ESG is an extremely broad area, and people have different definitions of its subsets,” FASB Chair Richard Jones said on May 4, at the 20th Annual Baruch College Financial Reporting Conference. “Our research in this area will help the board understand where specific ESG issues intersect with financial accounting and reporting and potential solutions.”
Mix of Old and New Members Named to Reconstituted Advisory Groups
The PCAOB has announced the inaugural members of its reconstituted advisory groups. Some have served on the board’s previous advisory panels, like former SEC Chief Accountant Lynn Turner, former SEC Corporation Finance Director John White, and Sandra Peters of the CFA Institute. Others are newcomers to the groups, like former FASB member Harold Schroeder. The two new panels are the Investor Advisory Group (IAG) and the Standards and Emerging Issues Advisory Group (SEIAG). At least one member from the IAG would also serve on SEIAG. This is to enhance communications between the two advisory panels, the PCAOB said. However, no SEIAG member is on IAG. There are “some new voices on the SEIAG, so there may be a little hope for fresh thinking,” said former FASB Chairman Dennis Beresford, who previously served on the PCAOB’s Standing Advisory Group. However, “a lot of overlapping membership adds to the perception that the board really only cares about ‘investors’ views. This is reinforced by the announcement of an Investor Advocate position.” Some critics believed that the old advisory panels were dominated by a few vocal individuals. It appears that four IAG members will also serve on SEIAG: Lynn Turner, Sandra Peters, Jeffrey Mahoney, general counsel of the Council of Institutional Investors (CII), and Jennifer Joe, accounting professor at the University of Delaware. The first meeting for IAG will be on June 8, and the first meeting for SEIAG will be on June 15.