FASB Seeking a Lot of Input

The Financial Accounting Standards Board (FASB) is seeking a lot of input, or is that input a lot, given the number of recently issued documents. In the past few weeks, FASB issued exposure drafts on:

  • Identifiable Intangible Assets and Subsequent Accounting for Goodwill;
  • Changing the interactions between Topic 321 (Investments – Equity Securities), Topic 323 (Investments – Equity Method and Joint Ventures) and Topic 815 (Derivatives and Hedging);
  • Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity;
  • Changing effective dates for standards on Credit Losses, Derivatives and Hedging, Leases, and Insurance;
  • Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The AICPA Financial Reporting Executive Committee spent time last week discussing potential responses to the Goodwill invitation to comment and the Convertible Instruments exposure draft. The first question FASB asked about goodwill was “what is goodwill or in your experience, what does goodwill represent?” At first, that question seems a bit strange, but as we continued our discussion, it became very clear that thoughts about potential amortization and how to handle impairment testing were significantly influenced by what each member perceived goodwill to be. I would venture to guess that grouping responses based on the answer to the first question will result in responses with similar answers to the remainder of the questions. Therefore, I am very interested in what the members of FASB think goodwill is, because ultimately that will most likely drive any changes to accounting for goodwill.

As we continued our discussions on convertible debt, I think we were getting a little punchy near the end when we started to ask questions like how to determine if it was more likely than not that it was probable something remote would not happen. If you laughed at that, you must be a CPA.

Preparers and auditors for private companies should be very interested in the proposals around changing effective dates. Not only does the proposal delay the implementation of four specific standards, the exposure draft also contains a revised framework that would place a two-year delay between the effective dates for public and private companies implementing significant new standards.

The justification is that for a private company to be able to garner learnings on implementing the standards at public companies, then a one-year delay is simply not enough. With only a one-year delay, the private companies already need to be accounting for transactions under new standards before public companies ever issue a complete set of annual financials under such standards. A two-year delay would provide at least several months between initial public company reporting and requiring a private company to follow a significant new standard.

While none of these proposals are as significant a change as revenue, leasing or credit losses, the number of changes do add up. If you work at or with public companies, it is no time to let up, and if you are focused on private companies, here are a few more changes to focus on in addition to everything else on your plate. Good luck to all!

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