What Will The FASB Be Up To Next?Posted: February 3, 2014
With the revenue recognition standard about to be issued and Financial Instruments, Leases and Insurance contracts in various stages of deliberations, the FASB is starting to spend some time thinking about what should come next on its agenda. While the FASB has its own list, here are a few of my suggestions (some of which are on the FASB’s list):
- Segment reporting – If nothing else, some of the concepts behind the current segment reporting standard need to be revisited. In a world where anyone in the company from the CEO to the first line manager can dive into any level of detail about financial transactions in seconds, the concept of “a” report the Chief Operating Decision Maker uses to decide where and how to allocate resources is so ‘90’s as to be laughable.
- Whatever per share – If Other Comprehensive Income and Cash Flow are so important then why won’t the FASB relent and finally allow/require companies to report OCI per share or Operating Cash Flow per share. It’s not like investors can’t compute these numbers on their own today and maybe by thinking about it we can decide if the calculations of dilutive shares that we compute for net income per share should be the same or different for these other amounts per share.
- Intangible Assets – in a world where a many companies’ values are no longer linked to the assets recorded on the balance sheet we have to ask what are we missing. The answer is Intangible assets. If you truly want to help investors predict future cash flow, then we need to consider valuing the assets that are going to create that value. While our current depreciation model for PP&E is not perfect, it is at least a somewhat reasonable approach to such assets. Most PP&E does decline in value over time as it is used up and the parts of PP&E that don’t use up value like land and artwork are not depreciated. I understand that well maintained office buildings and retail space does go up in value, but maybe the chief issue there is the way we require/allow the expensing of so much maintenance cost. Either way, at least PP&E has some value on the balance sheet unlike most intangibles that are created by businesses each day.
- Share-based compensation – I will probably get a lot of hate mail on this one, but if we would all just finally admit that share-based compensation is just that – compensation – and record compensation expense to the current value of shares owed each period, the accounting would be a lot simpler and lot more accurate and comparable across companies. And I won’t even mention how much simpler the footnote would be!
That’s enough from me. What do you think the FASB should be working on to make financial reporting better, more transparent and easier to understand?