Stick with Simple Principle for Income Statement Expenses, Say Advisers

Trying to break up income statement expenses into smaller components can quickly become a convoluted exercise, so FASB should stick with a simple principle to make line-item fixes, board advisors said. A principle that captures management’s view with examples balanced against what investors would need is the best approach to tackle disaggregation of income statement expenses, according to June 9 Financial Accounting Standards Advisory Council (FASAC) discussions. “I think the concept of disaggregation should be relatively simple,” said Howard Guild, chief accounting officer, Schlumberger Limited. “To me, if you have a well-articulated principle, a couple of good examples, perhaps mentioning the minimum number of categories you would expect from a company, I think you just leave it at that.” Getting consistent information would be important to investors as it would help with comparability, according to the discussions. Cost structures “at the end of the day is what we’re trying to look at if you’re getting a couple of line items you’re trying to identify what’s in those cost structures,” said Todd Castagno, head of global valuation, accounting and tax research, Morgan Stanley Research. The discussions come as the FASB has a project on its technical agenda on disaggregation of income statement expenses, a topic investors said it should make a top priority.


Vote to Consider Adopting Standards on Supervision of Other Auditors Scheduled

The PCAOB scheduled a meeting for June 21 to finally consider adopting a rule that would strengthen the requirements for the lead auditors that supervise other accounting firms and auditors working on the audit. This is the first audit standards-setting meeting for the board led by Erica Williams, who became chair in January. The audit regulator first issued a proposal in April 2016 in Release 2016-002. The PCAOB sought additional comments in September 2017, but instead of finalizing the proposal, the PCAOB again sought more comments in September 2021. When the PCAOB first issued the proposal more than six years ago, accounting firms requested that the board provide more guidance and clarification on some of the proposed requirements in Release 2016-002. The 2017 release included some proposed revisions to the 2016 proposal. It dealt with the criteria in determining the sufficiency of the engagement partner’s firm participation in the audit. It also addressed the information obtained by the lead auditor regarding the other auditor’s independence, knowledge, skill, and ability. Moreover, it addressed documentation the lead auditor is required to obtain from other auditors in an audit that involves multiple tiers of supervision. The latest release also modified some of the proposed amendments. Some comment letters had said that the first other auditor is often in a better position to understand certain operations and controls of a company in a location better than the lead auditor. The latest release would allow the lead auditor to direct the fist other auditor to communicate certain items to the second other auditor under certain situations.


New Governmental Accounting Standard Issued for Making Changes and Correcting Errors.

GASB has issued a new accounting standard that updates and clarifies the financial reporting requirements state and local governments should follow when making changes and correcting errors. The new GASB Statement (GASBS) 100, Accounting Changes and Error Corrections, updates rules dating from the 1970s in order “to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability.” The rules were developed because of accounting reporting differences that have bubbled up over the years among entities, reducing comparability. The guidance is effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged. “Governments and other stakeholders should find many of the requirements of Statement 100 familiar,” GASB Chair Joel Black said in a statement. “But they should find the understandability of the guidance greatly improved, and financial statement users should benefit from the new tabular disclosure.”