On February 22, 2022, Paul Munter, Acting Chief Accountant of the Office of the Chief Accountant of the SEC, issued a statement regarding the efforts of the Financial Accounting Standards Board (FASB) to consult with investors and stakeholders in developing new accounting standards. In general, Munter praised the FASB’s efforts to engage with users of financial statements with the goal of producing the best possible standards for improving the accuracy and effectiveness of financial reporting.
The key takeaway for CFOs, CFOs, audit committee members, investors, and others involved in financial reporting is that the FASB wants their input in developing accounting standards going forward. Therefore, where possible, companies, their staff and shareholders should consider taking the opportunity to comment on the process and standards that directly impact their business.
In June 2021, the FASB “issued an Invitation to Comment, Agenda Consultation (ITC), to solicit feedback from stakeholders on the FASB standard-setting process and its future standard-setting program.” This included “outreach by FASB staff and board members to a cross-section of stakeholders, approximately one-third of whom were investors or other users of financial statements.” Following more than 500 responses, ITC closed in September 2021. Munter encouraged the FASB and Financial Accounting Foundation Trustees, in its oversight role, to continue engaging with stakeholders going forward. to improve the standard setting process.
Munter said that “an understanding of changing investor needs can directly contribute to the FASB’s ability to keep standards current to reflect changes in the business environment and to quickly consider necessary changes in accounting principles. to reflect emerging accounting issues and changing business practices.” In short, in an ever-changing world, the FASB can benefit from hearing directly from those who actually use financial statements to make decisions or evaluate a business. This will help the FASB develop standards that are informed by real-world application, not just accounting standards produced in a vacuum.
However, it is not a one-way street, as Munter acknowledged. He encouraged “all stakeholders to engage with the FASB early and often in the standard-setting process” because “the purpose of financial reporting is to provide decision-useful information to investors and other users. “. Thus, he reiterated that investors and other stakeholders “should take every opportunity to share their views on what information is useful to them and how they might use that information.”
Munter also highlighted several topics that received substantial feedback in the ITC:
- Disaggregation of financial reporting information. Munter noted that there is “general agreement among investor commentators that greater disaggregation of financial information – in the income statement, cash flow statement and notes to financial statements – should be among the FASB’s top priorities”. The FASB held its most recent public discussion on disaggregation last month, and the possibility of “potentially targeted improvements” in this area may be on the horizon, particularly in light of the FASB’s existing project considering the disaggregation of certain charges from the income statement.
- Climate-related transactions. Respondents to the ITC “urged the FASB to continue to monitor the business environment and suggested some targeted questions for potential standard-setting as well as requests for broader disclosures regarding the impact of climate-related issues. on the financial statements”. The FASB currently has several projects underway regarding “climate-related features” and renewable energy agreements. Munter raised the possibility that now may be the time for the FASB to take “thoughtful action in targeted areas of accounting, disclosure and financial reporting” on climate-related issues.
- Digital assets. Many commenters noted that digital assets should be a priority for the FASB, including consideration that “the FASB should permit or require issuers to recognize certain digital assets at fair value.” In response, the FASB added a research agenda item on accounting for digital assets and exchange-traded products. This focus on digital assets has generally demonstrated that investors and preparers expect digital assets to grow in importance in the coming years.
In light of the FASB’s efforts to engage investors and stakeholders, and the SEC’s encouragement that the FASB continue these efforts, key company personnel should monitor requests for FASB comments on accounting standards, then express themselves when these requests relate to the company’s activities and financial report.
The SECond Opinions blog will continue to follow FASB developments and provide further updates.