Three Proposals Plus Final Concepts Chapter Coming in Second Quarter
FASB plans to issue three proposals plus a new conceptual framework chapter on the reporting entity in this year’s second quarter, according to its agenda as of April 17. The issuance timeline is tentative and thus could change. In April, the board plans to propose four illustrative examples that would clarify when to use Topic 718, “Compensation—Stock Compensation,” to account for profits interest awards, which are a form of compensation that provide an interest in a partnership’s future profits. Currently, U.S. GAAP does not explicitly discuss profits interest, but companies are required to determine which rule to apply to measure, recognize, and classify the awards and the resulting compensation cost when a company grants profits interest compensation. This lack of explicit guidance requires companies to use their judgment when accounting for such awards. This creates complexity, because profits interest can be economically similar to stock options or stock appreciation rights but vary in each partnership. As a result, companies have applied different accounting rules to similar fact patterns: some conclude that Topic 718 is the best fit, while others favor Topic 710, “Compensation–General.” The Private Company Council (PCC), a panel that works with FASB to develop rules for private companies, recommended that the board provide the examples in the GAAP codification to quickly and simply address the issue. Last year, the board voted to issue the proposal. Companies will have 60 days to submit comments.
Global ESG Rulemaker Votes to Issue Two Consultation Documents for Public Comment
On April 19, 2023, the International Sustainability Standards Board (ISSB) unanimously agreed to issue two consultation documents in May, including one that would establish the next round of ESG disclosure rules it will tackle for the next two years. The board voted to publish a Request-for-Information (RFI) to seek public input about what to put on its technical agenda; its strategic direction and balance; the criteria for assessing projects that may be added to its work plan; and the topics that should be given standards-setting priority. Four potential new topics will be highlighted: biodiversity; ecosystems and ecosystem services; human capital; human rights; and integration in reporting. Companies will have 120 days to submit comments, according to the discussions. “The market is keen to see what’s coming next—climate first but not climate only,” Vice Chair Sue Lloyd said. The second document will be an exposure draft to propose methodology for revising the SASB standards, aiming to improve their international applicability. The revisions come as maintenance and enhancement of SASB standards fell under the responsibility of the ISSB last year after the Value Reporting Foundation was consolidated into the IFRS Foundation in August 2022. SASB standards will therefore now serve as a source of guidance to help companies produce relevant and comparable disclosures when applying S1, General Requirements for Disclosure of Sustainability-related Financial Information, in the absence of specific ISSB disclosure rules. Companies will have 90 days to submit comments.
SME Implementation Group adds Four New Members
The IFRS Foundation appointed four new members to the SME Implementation Group (SMEIG) and reappointed 13 current members, the organization said on April 18. New members Cecilia Geron of Brazil, Nancy Aragón Granja of Ecuador, Omar Alberto Benitez Anibal of Peru, and Martín Nazzarro of Argentina were appointed to represent the Americas region for three-year terms starting on July 1. More than 80 countries, including the United States, permit the use of IFRS for small-to-medium sized entities (SME). The SMEIG is a global panel established under the foundation to support adoption and monitor implementation of the IFRS for SMEs standard, a self contained package of rules that was developed in 2009 for companies without public accountability that publish general purpose financial statements for external users. The foundation also said it is currently considering recent applications to replace seven SMEIG members who will retire on June 30, and it will announce those appointments in the coming months.