More expense lines could be required on the income statement.
FASB plans to require all companies to break out into their component parts more expense lines than previously expected on the income statement. Specifically, the board decided to refine the scope of its project on the disaggregation of income statement expenses to focus beyond “cost of tangible goods sold; cost of services and other cost of revenues; and selling, general, and administrative (SG&A)” to include any relevant expense line (excluding taxes). The structure of the income statement is not going to change, and the project will likely advance quickly, according to the board’s discussions. “Looked at the 20-year history of financial performance reporting and the question I always had was, ‘Gee, why didn’t it get done?’” Chair Richard Jones said. “And I think part of the reason was, we didn’t have a focused scope or we didn’t stick with our focused scope—and so, particularly, this is a project I would like to do fairly quickly.”
New rules on supplier finance programs will reveal financial health.
Starting next year, U.S. companies that use supplier finance programs to buy goods or services must disclose the full terms of those programs, including assets pledged to secure the transaction. FASB has issued Accounting Standard Update (ASU) 2022-04, Liabilities–Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires a buyer in such financing arrangements to disclose in the notes to the financial statements the details of their business impacts. Buyers must disclose the key terms of the program and where any obligations owed to a finance company have been presented in the financial statements, plus a roll forward of those obligations—information investors would find useful, according to ASU. Supplier finance programs are popular because they offer a flexible structure for paying for goods and services, enabling large companies to keep more cash on hand. But because U.S. GAAP does not require them to, companies have not been transparent about the effects those programs have on working capital, liquidity, and cash flows. That will change. “FASB’s new ASU responds to requests from investors for greater transparency around a buyer’s use of supplier finance programs,” FASB Chair Richard Jones said in a statement. “It enhances transparency by requiring new disclosures intended to help them better consider the effect of these programs on a company’s working capital, liquidity, and cash flows over time.” The provisions take effect on Jan. 1, 2023 for calendar year-end filers.
Board pressed about Federal Reserve crypto project.
FASB was asked during a joint discussion with the International Accounting Standards Board (IASB) whether the board had “touched base” with the U.S. Federal Reserve about its project on cryptocurrencies. “If you have, what was their reaction to this project?” IASB member Bertrand Perrin asked at the Sept. 30 discussions. “We certainly talked to our regular contacts and the office of the chief accountant is well aware of our project,” FASB Chair Richard Jones replied. “And we solicited their feedback as part of our project just like we do any stakeholder. Our primary regulator, the SEC, is well aware of our project, our agenda outreach, and the direction we’re heading.” The question comes amid talks by the Federal Reserve about whether to pursue or implement a central bank digital currency (CBDC), and its issuance of a related discussion paper in January for public comment. The Federal Reserve’s project, however, poses a different challenge than cryptocurrencies because a CBDC would change the U.S. monetary system. Cryptocurrencies such as Bitcoin, Ethereum, and other tokens, may or may not be utilized by interested parties; but some people have been confusing the two issues.
Chair Williams urges engagement with audit committees.
The PCAOB has hired a liaison, Todd Cranford, who will build relationships with financial statement preparers and audit committees of public companies, Chair Erica Williams said at a recent conference. Williams urged audit committee members to reach out to Cranford. “There is no substitute for the role engaged and informed audit committees play when it comes to maintaining and improving audit quality. You are the gatekeepers on the ground, vetting and hiring auditors, and overseeing their work,” Williams explained. “It’s important that you engage in a robust dialogue with your auditors every step of the way, from auditor selection to completion of each audit. And the PCAOB is here to help you be an effective voice on behalf of investors as you are having those conversations.” Under the direction of previous board leaders, the inspection staff has also been having conversations with audit committee chairs, which engagement many found to be useful. Furthermore, the PCAOB has also been issuing Spotlight publications tailored for audit committees. A recent one, Williams said, focuses questions that audit committees can ask their auditors. Moreover, she said the PCAOB’s individual audit firm’s inspection reports can be a good resource for audit committees as they evaluate their external auditors’ performance. “If you see a particular firm has had deficiencies in the past,” Williams said, “ask them what they are doing to avoid repeating those deficiencies in your audits.”