What do you want the FASB to work on?Posted: August 22, 2016
The FASB recently issued an invitation to comment on its agenda for the coming years. With the releases of standards on revenue, leases, financial instruments and credit impairment, the big work from the previous agenda is now more or less complete. While smaller projects will always be part of what the FASB does, it’s now time to decide what big projects the FASB should work on in the coming years. The invitation to comment suggests four areas for the FASB to focus on:
- Intangible Assets
- Pensions and Other Postretirement Benefit Plans
- Distinguishing Liabilities from Equity
- Reporting Performance and Cash Flows
While pensions and postretirement liabilities, as well as, distinguishing liabilities from equity will have a more limited audience, everyone needs to pay attention to intangible assets and reporting performance and cash flows. With the balance sheets of public companies only showing assets that make up 20% of their market value on average, there appears to be some pretty important assets missing from most company’s reporting. Today those assets are missing because that is what is required by the rules. Research and development must be expensed in the U.S., and other intangibles like the value of customer relationships and brand names are only valued when they are acquired as part of a purchase of another business. If you create that value on your own, then it never gets to the balance sheet and all of the efforts and costs are flushed out of the income statement as expense. While the idea of trying to value those types of assets gives me pause and makes me wonder if all CPAs will be forced to become valuation experts, the fact that our product – financial statements – is becoming increasingly irrelevant makes me think we do need to do something in this area.
The final area of interest is focused directly on those increasingly irrelevant financial statements. The FASB has previously released some ideas on how to completely revamp the income statement, and if you saw the initial proposal on not-for-profit financial statements, you saw that the FASB is very interested in requiring companies to report operating cash flows using the direct method. If you thought implementing the changes in accounting on revenue, leases and financial instruments was fun, having to set up the systems and process to gather cash receipts and expenditures to report cash flows under the direct method will make us all wonder why we became CPAs. Such a requirement will essentially force companies to keep a whole separate set of books. That means we can add the cash set of books to the accrual and tax basis sets of books we all keep today.
If you have thoughts on these items or other items you think the FASB should address you can send comments to the FASB through October 17. If you are really worked up about these issues you can also ask to participate in roundtables to discuss the agenda that will be held in the fourth quarter of 2016. You have to request an invitation (and submit written comments), but like voting, if you don’t participate, you have no one to blame but yourself for the outcome.