FAS Staff Propose Update to GAAP Taxonomy on Tagging Purchased Financial Assets

FASB staff members are seeking public input on introducing recently proposed guidance on accounting for purchased financial assets into the U.S. GAAP Financial Reporting Taxonomy, the board said in a June 28 alert. The taxonomy is a list of computer-readable tags in Extensible Business Reporting Language (XBRL) that businesses use to label the financial data in financial statements so that they can be filed electronically. Staff members are seeking feedback about potential data tags for Proposed Accounting Standards Update (ASU) 2023-ED400, “Financial Instruments—Credit Losses (Topic 326) Purchased Financial Assets,” which was issued for public comment. Both those who agree and disagree with the proposed taxonomy upgrades are encouraged to weigh in but should “identify and clearly explain the question or issue to which they relate,” according to the release notes. FASB issued the proposal on June 28 to amend the current expected credit losses (CECL) standard in areas deemed to be complex, as it requires two different models for acquired financial assets depending on a borrower’s creditworthiness. If finalized, companies will be able to use a single accounting approach to account for all acquired financial assets (with exceptions) based on seasoning criteria. Comments are due by August 28 and can be submitted to xbrled@fasb.org.

PCC Project Could Stem Reporting Overreach on Definition of a Derivative.

A FASB rulemaking project that simplifies the definition of a derivative would help all companies, as today’s accounting rules have been subjected to overreach by market experts, according to recent Private Company Council (PCC) discussions. A project could provide a scope exception, with guardrails, to clarify when the derivatives definition should apply and when to use other rules in U.S. GAAP. “In general, this piece of guidance in the literature is very complex so I would be supportive of anything that would make it less complex,” PCC Chair Candace Wright said during June 23, 2023, discussions. “Would be better for everyone—not just private companies.” The definition—which is being studied by the board—tends to cause derivatives specialists to overreach beyond the norm on what is deemed to be a derivative, FASB members told the PCC. SFAS 133, Accounting for Derivative Instruments and Hedging Activities, which was issued in 1998, has now somehow “become that hammer and everything it finds is a derivative,” FASB Chair Richard Jones said. “I’m sure we’ve all had a derivatives expert that showed up and said ‘they’ve found one for us’,” he said. Generally, derivatives and hedging are topics FASB has had to address multiple times in the past for complexity—both because of the products and the rules. The topic was raised to the PCC to solicit input so that the board can gauge whether to move current research efforts to its technical agenda.


Revenue Recognition Accounting Standard Placed Under Public Review

The IASB issued a consultation document to obtain public input on whether its revenue accounting standard has worked effectively in the global marketplace over the past seven years. The standard was developed jointly with FASB to provide cohesive, principles-based guidance for reporting revenues earned from customer contracts. The document, “Request-for-Information 2023-2, Post-implementation Review IFRS 15 Revenue from Contracts with Customers,” in general asks whether IFRS 15, Revenue from Contracts with Customers, proved to be beneficial to businesses, investors, and others—or whether it should be amended. The review is part of the board’s standard due process. “We encourage stakeholders to share evidence they have with us on whether IFRS 15 is achieving its objective around the understandability of the Standard and on the costs and benefits of applying it,” IASB Chair Andreas Barckow said in a statement. Companies should weigh in on 11 sections of the RFI, including on the importance of convergence between IFRS 15 and ASC Topic 606, according to text of the consultation document. The comment period ends on October 27.