Will FASB Need to Consider AI in Overhaul of Accounting for Software Costs?

FASB may need to consider how artificial intelligence (AI) would not only fit into its project on accounting for software costs, but also its general standards-setting process, according to recent board discussions with small public companies. The increasing prevalence of AI and its role in the accounting profession have been on the minds of financial statement preparers, raising various issues, as indicated in a discussion by the board’s Small Business Advisory Committee (SBAC). In a closed session, the issue was raised with respect to “the preparation of financial statements, disclosures, auditability,” Ryan Siurek, chief accounting officer at Biodesix, Inc., said on May 18, 2023. There are “a plethora of issues that can be thought of relative to how AI can impact the things that people in this room work on on a regular basis and its implication to standard-setting,” he said. His remarks were to summarize views of some SBAC members with respect to FASB’s project on software costs. The SBAC is an 18-member body that provides FASB with input from a small public company perspective, considering whether there are differences in that input versus private company perspectives. Its members are a mix of financial statement users, preparers, and auditors. Accounting for software costs was one of several topics the FASB raised to the group.


IASB Launches Review of Credit Loss Accounting Rules

The International Accounting Standards Board (IASB) launched a review of its credit loss accounting standard that was developed about a decade ago in response to the 2008 global financial crisis. The board issued “Request for Information: Post-implementation Review of IFRS 9 Financial Instruments–Impairment,” to obtain public feedback about the effects of the impairment requirements under International Financial Reporting Standard (IFRS) 9, Financial Instruments, have had on companies, investors, auditors and regulators. The provisions were developed to provide users of financial statements with more useful information about a company’s credit losses on its financial assets and on its commitments to extend credit to facilitate users’ assessment of the amount, timing, and uncertainty of future cash flows. The accounting standard requires a company to recognize and update expected credit losses throughout the life of a financial asset, factoring in the losses it expects based on relevant available information. Consequently, investors receive more timely information about expected credit losses. IFRS 9 introduced a expected credit loss (ECL) model to replace the previous “incurred credit loss” model, which only allowed credit losses to be recognized when a loss event occurred. Under the incurred credit loss model, the effects of possible future credit loss events were not considered, even when they were expected. The board is seeking input on 10 questions, including whether the ongoing costs of applying the general approach to particular financial instruments are significantly greater than expected, or whether the benefits of the resulting information to users of financial statements are significantly lower than expected. The comment deadline is Sept. 27.


Accounting Rules on Infrastructure Assets Getting Revised for State and Local Governments.

The Governmental Accounting Standards Board (GASB) is developing guidance to improve the financial reporting information around infrastructure assets—long-lived capital assets like bridges, tunnels, and lighting systems. The board said it added a project to its technical agenda to update the reporting rules around infrastructure assets so that they are more useful for making decisions and assessing government accountability; are comparable across governments and consistent over time; are relevant to assessments of a government’s economic condition; and better reflect the capacity of those assets to provide service and how that capacity may change over time. The project comes after staff research and recommendations by the Governmental Accounting Standards Advisory Council (GASAC), the board’s main advisory body. GASB develops U.S. Generally Accepted Accounting Principles (GAAP) for state and local governments. Currently, GASB Statement (GASBS) 34, Basic Financial Statements—And Management’s Discussion and Analysis—For State and Local Governments, allows two approaches for reporting infrastructure assets: the depreciation approach, whereby they are listed under depreciable capital assets, and the modified approach, whereby they are reported as an expense. Approaches can vary from government to government, which introduces a level of inconsistency in financial reports. This inconsistency makes it challenging for users of financial statements to compare the information.