Plan to Revise Accounting for Purchased Financial Assets Moving Ahead

Despite pushback from some accounting firms, on February 28 FASB voted to move ahead with its plan to revise the accounting for purchased financial assets—a tricky area in the current expected credit losses (CECL) standard that the board recently proposed to fix. The board said that those who would be most impacted by the guidance favor a change that would allow all purchased financial assets (PFA) to follow one approach. Notable is that both investment analysts and accountants want today’s rules changed, according to the discussions. “While it happens occasionally, it doesn’t happen regularly that we hear from investors and preparers aligned on an issue–and this one clearly meets those criteria,” Chair Richard Jones observed. “I recognize that there are some preparers that are less apt to have been in business combinations and maybe they have more scope issues versus disagreeing with the economics of the outcome of what PFA accounting would do and I understand that and I would separate that and I think that’s something we can deal with in scope.” The decision relates to Proposed Accounting Standards Update (ASU) 2023-ED400, “Financial Instruments—Credit Losses (Topic 326) Purchased Financial Assets,” which was issued for public comment last year to expand the purchased credit deteriorated (PCD) model to include high-quality loans. This would result in all loans being accounted for the same way under a new term “purchased financial assets” (PFA). If the changes come, the current non-PCD model, which is deemed to be unintuitive and causes banks to double count losses, will be eliminated.


Proposal Would Prohibit Misleading Statements by Auditors About PCAOB Registration, Oversight

The Public Company Accounting Oversight Board (PCAOB) voted unanimously on February 27 to propose a new rule that would ban auditors from misleading capital market participants and others about their oversight by the board, which lends an aura of credibility to their services. If adopted, new Rule 2400, “False or Misleading Statements Concerning PCAOB Registration and Oversight,” would address how a public accounting firm and its employees present the firm’s PCAOB registration status, including the scope of the board’s oversight. “PCAOB registration is not an advertising gimmick for firms,” said Chair Erica Williams. “In order to protect investors from misinformation, there must be consequences when firms misrepresent their registration status or what it means.” Accountants that audit private companies do not comply with rigorous PCAOB standards and rules; these auditors follow standards set by the AICPA. Private companies also do not comply with extensive SEC disclosure requirements that apply to publicly traded companies. With the planned rule, the PCAOB wants to make it clear that registration with, and oversight by, the board do not automatically mean that a firm is providing high-quality audits.


How Many Cities, States Use US GAAP to File Reports?

GASB is gathering information and building a model that consistently tracks the number of cities and states that actually use U.S. Generally Accepted Accounting Principles (GAAP), chair Joel Black said. The data will inform the board about the environment in which it is setting standards as well as provide information to the SEC, Black told the Financial Accounting Foundation’s (FAF) Standard-Setting Process Oversight Committee on February 23, 2024. The information would be useful to the SEC’s implementation of the Financial Data Transparency Act (FDTA), especially with respect to “the subset of governments that are in the debt market that utilize GASB GAAP and those that don’t,” he said. “And we will be able to segregate that out for them and provide that information to them.” The FDTA requires the SEC to require any information filed with the Municipal Securities Rulemaking Board (MSRB) to have a data standard. This would encompass the municipal bond market which uses GAAP that is developed by the GASB. The board is working on developing a data standard for how governmental financial statements should be portrayed electronically. The technology will be usable for Extensible Business Reporting Language (XBRL) filings and other technologies. Ultimately, this may or may not become a part of the FDTA implementation depending on what the SEC does, according to prior board discussions.