No Fundamental Change Needed on Cost-Benefit Due Process

FASB’s approach for weighing the costs versus benefits of changing accounting rules may be the gold standard of due processes, but improvements can still be made, the board’s main advisory body said on September 21. No fundamental changes are needed for the current process, but more can be done to ramp up educational and communication initiatives; to utilize the Emerging Issues Task Force (EITF); and to bring insight to public board meetings about the alignment of U.S. GAAP with IFRS when developing standards, members of the Financial Accounting Standards Advisory Council (FASAC) said. Those improvements could cut costs from the system at large. “The broad perspective in the room was that there’s nothing fundamentally broken with the benefit-cost analysis that FASB does, it’s something to show as an example of a really, really good process,” Daniel Murdock, executive vice president, chief accounting officer and controller at Comcast Corp said. “So we have thoughts [but] no fundamental changes need to be done.” The FASAC is 35-member panel is dawn from the ranks of chief executive officers, chief financial officers, senior partners of public accounting firms, executive directors of professional organizations, and senior members of the academic and analyst communities. The discussion comes as improvements in financial accounting and reporting come at a cost—the costs to prepare, disseminate, and use accounting information, according to meeting papers. The majority of those costs are incurred by the companies that prepare financial information but are passed on to shareholders in the form of lower returns. But weighing this can be tough on standards setters. These insights piggybacked on a closed FASAC session wherein members opined on whether and how the board should improve its current costs versus benefits analysis—a key principle that guides the board’s standards-setting efforts to “issue standards when the perceived benefits of a change justify the perceived costs of that change.”


Proposal Coming to Amend Reporting Rules on M&A Performance

The IASB will issue a proposal next year that will require companies to better reflect the performance of mergers and acquisitions (M&A) in their financial statements, according to September 19, 2023, board discussions. The board plans to issue an exposure draft to solicit public input on the changes to amend the disclosure requirements of International Financial Reporting Standard (IFRS) 3, Business Combinations, and the impairment test in International Accounting Standard (IAS) 36, Impairment of Assets. The public will get 120 days to submit comments, the board agreed. No IASB member plans to dissent. The proposal is expected to be issued in the first half of 2024. The changes are coming in part because current IFRS does not specifically require companies to provide information about factors such as whether an acquisition is meeting management’s expectations for that acquisition, and thus investors are not able to properly assess performance and more effectively hold management to account for its acquisition decisions. M&A often involve large transactions that play a central role in the global economy, according to meeting papers. The IASB aims to provide rules where companies can, at a reasonable cost, provide users of financial statements with more useful information about such deals. The board will propose to amend IFRS 3 to: 1) add new disclosure objectives; 2) add new disclosure requirements, including about the company’s key objectives and targets for a strategically important business combination and the extent to which those key objectives and targets are met in subsequent periods; and add quantitative information about synergies expected to arise as a result of a business combination.

New Primary Financial Statements Standard to be Published in 2024.

IASB Chair Andreas Barckow on September 25 said the new accounting standard on primary financial statements will be issued in the second quarter of next year, clarifying to a rulemaking audience a more precise time for when those changes will be published. The standard will get a new number—IFRS 18—to replace International Accounting Standards (IAS) 1, Presentation of Financial Statements, which is “a fundamental standard that was first issued in 1975,” then revised several times, Barckow told the World Standard-Setters conference, according to published remarks. The standard “will affect all companies and will improve the information companies provide about their financial performance,” he said. “It will give investors better information to enable better decisions.” International Financial Reporting Standard (IFRS) 18, which took about a decade to develop, will introduce three key improvements: 1) bring more rigour to the statement of profit or loss by requiring companies to present two new mandatory subtotals, including operating profit; 2) allow companies to include so-called management-defined performance measures if they choose to, with certain requirements as to how they are presented to provide transparency; and 3) provide new guidance on grouping of the information provided on the face of the financial statements or in footnotes. Barckow said he expects national standards setters “will again play a vital role in supporting the implementation effort.” The rules will take effect for annual periods beginning on or after January 1, 2027. Efforts to revise current rules started in 2014 under prior IASB chair Hans Hoogervorst to examine the purpose, structure, and content of the primary financial statements, including the relationships between the individual statements. The IASB added the topic to its agenda after learning that investors want the board to focus on a greater breakdown of information in core financial statements, with many stressing that current figures are bundled together in one total, obscuring sums that can impact profitability.