Two SEC Commissioners Urge FASB, GASB Trustees Not to Govern Over ESG Reporting.
Two conservative SEC commissioners—Hester Peirce and Mark Uyeda—urged the Financial Accounting Foundation (FAF), FASB and GASB’s parent organization—not to get involved in writing sustainability standards in the future. “Introducing sustainability standard-setting to the FAF runs the risk of degrading the independence and effectiveness that are the hallmarks of the FAF’s two standard-setting boards,” Peirce and Uyeda wrote in a July 22 comment letter in response to the FAF’s Strategic Plan Draft For Public Comment, issued in May. The letter was addressed to FAF Chair Kathleen Casey and Executive Director John Auchincloss. The IFRS Foundation has set up the International Sustainability Standards Board (ISSB), but there is no official separate sustainability standards setter in the United States. The SEC is currently in the midst of developing a subset of environmental, social, and governance (ESG) rules, recently issuing a rulemaking proposal on climate change, and now considering one related to workforce. FASB only has a narrow rulemaking agenda on environmental credits. The FAF draft plan cites the “growing demand by investors and other users of financial reports for greater consistency and comparability in reporting related to sustainability,” and pledges “to ensure our organization can constructively contribute, as appropriate, to any future standard-setting relating to sustainability reporting.”
Reporting Requirements for Segments, Expenses, Quarterly Disclosures Set for Discussion.
FASB is set to rule on financial reporting issues in three areas: segment reporting, disaggregation of income statement expenses, and interim disclosure requirements. Segment reporting discussions will focus again on the feedback external reviewers provided on a package of disclosure requirements the board plans to issue this year. The board will also determine whether the benefits of the changes would justify costs incurred, according to a July 21 board alert. Segment reporting—meaning the reporting of the operating units of a company in its financial statements—is required for public companies but not for private companies. Under U.S. GAAP, companies have to report a segment if it has at least 10% of revenues, 10% of the profit or loss, or 10% of the combined assets of the company. The forthcoming proposal would require the disclosure of segment expense information based on what a CEO or CFO deems to be material. Specifically, the proposal will include a disclosure principle based on the significant segment expense categories that are regularly provided to the chief operating decision maker (CODM), and included in the reported measure of segment profit or loss. The project was added to the board’s technical agenda five years ago after accounting professionals told the board that the segment aggregation criteria and disclosure requirements under ASC Topic 280, “Segment Reporting,” should be improved.
Global ESG Board on Track to Issue New Climate Disclosures by Year-End
International Sustainability Standards Board (ISSB) Chair Emmanuel Faber on July 20, 2022, reiterated the board will meet its goal to issue climate-related disclosure rules by year-end and will then move to study other environmental, social, and governance (ESG) issues. “We are climate first but not climate only—so what comes next?” he said at the board’s inaugural meeting. Faber said it was important for the board to meet last week because the comment period on the two proposals related to climate disclosures and a general sustainability disclosure framework was closing in. The board does not meet in August, so the July meeting represent the best time to pull the whole board together for an educational session before the fall, when it hopes to hit the ground running. “That means that by the end of the year where we hope to be finalizing our decisions, not only the board will be quorate but it will be complete in terms of its membership to really have the full participation of everyone,” he said. The ISSB was established by trustees of the IFRS Foundation in November 2021 to develop ESG disclosure rules for global use.