Rules for Software Costs Need More Disclosure Provisions, Investor Advisory Panel Says

Senior analysts on a FASB advisory panel suggested that the board ramp up disclosure rules for a proposal it is developing on software costs, stressing that businesses do not provide consistent information. More data with disclosure requirements should be added to the provisions, the Investor Advisory Committee (IAC) told the FASB during a May 16 meeting. “We commend you for taking this on, because it’s a really challenging initiative,” Minesh Patel, senior director and sector lead, US leveraged finance at S&P Global Ratings, said. “And I think we walked away with the key concept of, look, more detail, more disclosure here is really useful,” he said. “There is inconsistency with how it’s being recorded and how it’s been applied through various companies, and we talked about the fact that we have to use alternative measures to value companies using the percentage of sales, as opposed to being able to dig through the numbers and try to compare different entities. So, we encourage you to keep moving forward and also just more data with disclosure.” According to the discussions, banks have a high technology span, but analysts can’t always see where it’s going. “I think it’s a big part of the financial industry where we’re curious what the tech spend is,” Catherine Mealor, managing director at Keefe, Bruyette & Woods (KBW), said. “And typically, it’s just lumped into the data processing line, but there’s a lot on that line, so we don’t really know how much of actually new investments are going in,” she said. “So, some granularity to just us having a better sense as to how much of new software development and internal software development is happening versus operational data processing expense would be helpful.”


GASB Mulling Project on Disclosing Cybersecurity Risk

GASB is considering whether rules are needed for disclosing cybersecurity risk, as the topic was recently flagged as a top priority by board advisers, Chair Joel Black told oversight trustees on May 21. Once a year, the Governmental Accounting Standards Advisory Council (GASAC) votes on priority issues for the board, and last month cybersecurity risk and electronic financial reporting “by far out-scored all of the other projects,” Black told a meeting of the Standard-Setting Oversight Committee, a trustee arm of the Financial Accounting Foundation (FAF). A project would consider whether it is necessary for governments to disclose risks related to cyber-attacks in the notes to the financial statements. But the board has several issues to weigh, Black explained. “There are a lot of things that are important about cybersecurity risk, but where is external financial reporting in our purview, including a largely historical financial report; what are the purposes of that, what’s the purpose of it in providing stakeholders with information on cybersecurity risk, or is that information related to those risks provided somewhere else?” he said. Cybersecurity risk and electronic financial reporting beat out 35 topics, including new topics or revising old ones, GASAC Chair Robert Hamilton clarified on May 22 at the FAF’s quarterly trustee meeting.


Experiment on Proposed International Going Concern Language to Inform AICPA’s Standards-Setting Project

As the AICPA’s Auditing Standards Board (ASB) considers potential changes to its guidance on going concern, an ASB task force found in an experiment that non-professional investors (NPI) believe including proposed international going concern language in the auditor’s report provides adequate warning when a company fails the next year. At the same time, NPIs are more confident that a company will continue operating even though there may be liquidity and financial condition risks if an audit report includes the proposed going concern (PGC) language. The PGC is not intended to provide greater assurance that a company will continue as a going concern, according to a presentation slide prepared for a meeting of the ASB on May 15. The IAASB’s PGC language is as follows: “We have concluded that management’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Based upon the audit evidence obtained, we have not identified a material uncertainty related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern.” This language was in an exposure draft issued for public comment in April 2023 by the International Auditing and Assurance Standards Board (IAASB). The international board began its standard-setting project because recent corporate failures around the world have led investors and regulators to ask for enhanced transparency on going concern. The IAASB is expected to vote on final standards in the fourth quarter of this year. The PCAOB is also working on a going concern project and is expected to issue a proposal in 2024.