From the President’s Desk

September 2011

At the Financial Accounting Foundation (FAF), listening is one of the most important things that we do. Listening is central to our mission and that of our two standard-setting bodies, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).

Keeping our ears open to the concerns of all of our stakeholders—investors, taxpayers, preparers, auditors, lenders, donors, analysts, bondholders, company executives and government officials, to name a few—enables the FASB and the GASB to develop higher-quality and more useful accounting standards for companies, public and private, nonprofits, and state and local governments.

In the coming few weeks, all of us will be doing a lot of listening—to what we hope will be a wide range of voices and opinions.

Beginning in early October, the GASB will hold a series of public hearings in New York, San Francisco, and Chicago focused on two new proposals intended to improve the calculation and reporting of costs and obligations associated with the pensions that governments provide to their employees.

Also in October, the FASB will sponsor two in-depth roundtables (one in Chicago, the other in San Francisco) to talk with preparers, auditors, and users of private company financial statements about their concerns with existing generally accepted accounting principles (U.S. GAAP) and their thoughts on how the FASB can better consider their needs when setting standards.

The GASB will launch its hearings on October 3 and 4 at the LaGuardia Plaza Hotel in Queens, New York City followed by additional hearings on October 13 and 14 at the Sir Francis Drake Hotel in San Francisco, and on October 20 and 21 at the Renaissance O’Hare Hotel in Chicago.

We do not expect these hearings to be without controversy. The two pension proposals (Exposure Drafts) unveiled by the GASB in early July would significantly alter the way that cities, towns, and states report their pension obligations under U.S. GAAP.

The first of the two Exposure Drafts—Accounting and Financial Reporting for Pensions—primarily relates to financial reporting by governments that provide pensions to their employees. The second—Financial Reporting for Pension Plans—addresses financial reporting by the pension plans that administer the pension benefits.

Without getting into all the details, the GASB’s proposals would make the financial reporting of pensions more transparent, comparable, and decision-useful to citizens, legislators, and analysts of municipal and state bonds. As an example, the first new pension proposal would require governments to report their net pension liability—that is, the difference between the total pension liability and the value of the investments they have set aside to pay the pension benefits. It also would provide for immediate recognition of more components of pension expense than now required.

To date, the GASB has heard both from those who believe the new requirements go too far and from those who believe they do not go far enough. The GASB is looking forward to hearing more during the hearings in October. Extensive constituent feedback can help ensure that the GASB will make the best possible decision about the final standards, a decision that will be announced next year. Visit the GASB web site for more information on the GASB pension project.

While the GASB is listening to stakeholders on pension reporting, FASB members will be hearing from those who are concerned about the interests of private companies—whether existing standards take private company needs into account and whether there are additional actions that the FASB can take to address private company concerns.

During roundtables at the Renaissance O’Hare Hotel on October 11 and the San Francisco Airport Marriott on October 17, private company officers, lenders, auditors and financial statement preparers will participate in wide-ranging discussions with FASB Board members and staff. The discussions will touch on issues associated with accounting and disclosure requirements for interest rate swaps, fair value measurements, and variable interest entities. Participants also are invited to raise any other issues of concern.

The roundtables are part of larger and separate initiatives that both the FAF and the FASB have undertaken in an effort to better understand the issues associated with setting standards for private companies.

For example, in July the FASB staff released an initial analysis identifying six specific ways in which use of financial statements for private companies differs from that of public companies. That work eventually will become the foundation of a new set of decision-making criteria that will help the FASB identify whether and when to make exceptions or modifications to U.S. GAAP for private companies. Establishing that set of criteria was a key recommendation of the Blue-Ribbon Panel created last year by the FAF (in association with the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy) to study the private company issue.

While the efforts to develop new decision-making criteria are proceeding, the FASB staff is working closely with the Private Company Financial Reporting Committee (PCFRC), an advisory panel, and others to help develop and vet potential exceptions and modifications for private companies for the FASB’s consideration in current standard-setting projects.

That work already is having an effect on the Board’s decision making. In response to recommendations from private company practitioners, the FASB completed a project to reduce the cost and complexity of testing goodwill for impairment. In its revenue recognition project, the FASB has tentatively decided to exempt private companies from certain new disclosure requirements. In its financial instruments projects, FASB has proposed a measurement exemption for nonmarketable equity securities. And, for many recent projects, the FASB instituted one-year deferrals for nonpublic entities to enable them to implement new standards more effectively and efficiently.

As the FASB works on standards, the FAF is considering possible changes to the standard-setting process for private companies and nonprofit organizations, including the Blue-Ribbon Panel’s recommendation to create a separate standard-setting board. Earlier this year, the FAF created a Working Group as the next step in studying the various issues.

The Working Group has met with scores of practitioners, including representatives of CPA firms with substantial private company and not-for-profit client bases, groups representing private company preparers, and academic leaders who have reviewed or undertaken significant research on issues relating to private company and not-for-profit financial reporting.

Working Group representatives also have participated in discussions with the FASB’s advisory groups, including the Financial Accounting Standards Advisory Council, the PCFRC, the Not-for-Profit Advisory Committee, and the Small Business Advisory Committee.

In addition, the Working Group has had meetings with lenders, investors, sureties, regulators, donors, and others to obtain user perspectives on private company and not-for-profit financial reporting issues. We also received a large number of letters from interested parties commenting further on the Blue- Ribbon Panel recommendations. The enormous amount of feedback received during this extensive listening process will enable the FAF Trustees to develop an informed proposal about the future of the standard-setting process for non-public entities. The Trustees anticipate issuing the proposal in the form of a document for public comment in the coming weeks.

Listening is a critical part of the process that the FAF, the FASB, and the GASB follow to ensure that their decisions are well-informed and cognizant of the needs and views of all their constituents. But listening is effective only when interested parties speak. To that end, we urge all affected constituents to make their views known, not just during the upcoming listening sessions, but throughout the year and throughout all of our comment periods. I’d also invite you to send me an email to share what might be on your mind. Just drop me a line at


FAF President and Chief Executive Officer