FASB News
Goodwill Accounting Back on New Agenda Consultation Plan
FASB will revisit goodwill accounting in its upcoming agenda consultation document, a topic it previously abandoned due to lack of board consensus. FASB Technical Director Jackson Day told the AICPA & CIMA’s Current SEC and PCAOB Developments conference that “amortization of goodwill for book purposes” will be included in the upcoming consultation document. The consultation document will be issued this year as an invitation-to-comment (ITC) to solicit public views on the board’s next rulemaking agenda, he said on December 9. “We look forward to you giving us your feedback on if that is something we should be working on.” The ITC, a FASB staff document without board views, will provide the public with an extended comment period to share their thoughts on goodwill and other topics.
Advisers Highlight Free Cash Flow, EBITDA as Priority Areas for Reform
A FASB advisory panel comprising senior accounting professionals and finance executives has identified free cash flow and earnings before interest, taxes, depreciation, and amortization (EBITDA) as two key performance indicators (KPI) that warrant attention in a potential project slated for next year. In a meeting on December 5, members of the Financial Accounting Standards Advisory Council (FASAC) expressed concerns that metrics for both free cash flow and EBITDA lack comparability and transparency across companies, despite being widely utilized by investors, analysts, and corporations to evaluate performance. “Those have the biggest relevance, and perhaps we can learn through that process and go from there,” said Matt Janzaruk, senior vice president and chief accounting officer at Procter & Gamble, summarizing the views of some of the FASAC. FASAC members also voiced concerns over inconsistent definitions and adjustments across companies and industries, hindering standardization of KPIs in general. Opinions were divided as to whether FASB should mandate certain KPIs or let companies choose, with some supporting mandatory disclosure of key KPIs like EBITDA and free cash flow, and others favoring a management approach.
PCAOB News
PCAOB Chair: Inspectors Are Seeing ‘Significant Improvements’ in Audits by Largest Firms.
Following a troubling increase in audit deficiency rates over the past few years, PCAOB Chair Erica Williams finally had some good news for auditors: “Today I am pleased to stand before you and deliver the news that PCAOB inspectors are seeing significant improvements in the aggregate Part I.A deficiency rate from the largest firms.” Williams delivered the remarks at the AICPA & CIMA Conference on Current SEC and PCAOB Developments on December 10, 2024, in Washington. Part I.A of PCAOB inspection reports identifies any deficiencies that the auditor had not obtained sufficient appropriate audit evidence to support its opinion on the company’s financial statements and internal control over financial reporting. “Now, it must be repeated that Part I.A. findings are serious,” Williams said. “Examples of Part I.A findings include things like failing to perform any procedures at all to test revenue or the costs of inventory, as well as instances where the auditor did not identify and test any controls over long-lived assets and depreciation expense.” A report summarizing findings from the 2023 inspections showed overall deficiency rate of 46% for all issuer audit inspections. But it also showed deficiency rates leveling off at Big Four firms, showing some positive signs already. The deficiency rate for the 2022 inspection cycle for all firms was 40%, up from 34% in 2021, and 29% in 2020.
