FAF Completes PCC Three-Year Review
In November 2015, the FAF Board of Trustees issued its final report on the Private Company Council (PCC) three-year review to determine whether the PCC was meeting its primary responsibilities and mission while assessing the PCC’s continuing role and effectiveness. The three-year review was a key initiative of the FAF/FASB/GASB Strategic Plan, issued in 2015.
The FAF found that the PCC had been successful in addressing the needs of financial statement users of private company financial statements, while reducing costs and complexity for preparers — and that its composition and size were appropriate.
Areas identified for improvement focused on the manner in which the PCC provided the FASB with private company perspectives on the Board’s active agenda projects, and the way the PCC communicated those perspectives to its stakeholders. To address these issues, the Trustees amended the PCC’s operating procedures to increase the effectiveness of its advisory role.
As part of the three-year review, the Trustees decided that its Private Company Review Committee should begin to transition its PCC oversight responsibility to the Standard-Setting Process Oversight Committee, with the Oversight Committee assuming this responsibility no later than the end of 2017.
FAF Welcomes New Leadership, Fills Other Key Roles in the Organization
In December 2015, the FAF Board of Trustees announced the appointment of six new members, including the chairman.
Charles H. Noski, a distinguished chief financial officer, audit committee chair, and senior executive at a number of major U.S. corporations, was elected to a three-year term as chairman. He succeeded Jeffrey J. Diermeier, former president and CEO of the CFA Institute, whose term ended on December 31, 2015.
Other appointees included Charles M. Allen, a retired partner and past chief executive officer of Crowe Horwath LLP; Christine M. Cumming, retired first vice president and chief operating officer of the Federal Reserve Bank of New York; Eugene Flood, Jr., a member of the board of directors of Janus Capital Group, Inc., and a former board member of other major asset management firms, including TIAA-CREF and Smith Breeden Associates, Inc.; Kenneth B. Robinson, former chief audit executive and global risk and compliance leader of the Procter & Gamble Company; and Diane M. Rubin, retired audit partner and quality control partner of Novogradac & Company LLP.
The Trustees’ Appointments and Evaluations Committee also conducted nationwide searches for other key roles, including successors for retiring FASB Member Tom Linsmeier and retiring GASB Members Marcia Taylor and Bill Fish. Christine Ann Botosan, professor of accounting at the David Eccles School of Business at the University of Utah, was appointed to succeed Tom Linsmeier effective July 1, 2016. Brian W. Caputo, chief financial officer and city treasurer of the city of Aurora, began his term as a GASB member on July 1, 2015, succeeding Marcia Taylor.
A number of 2015 appointees began their terms in 2016, including a new PCC chair, Candace E. Wright, and three new PCC members. Andrew G. McMaster, Jr. and Robert W. Scott also were appointed as the new chairs of the Financial Accounting Standards Advisory Council (FASAC) and the Governmental Accounting Standards Advisory Council (GASAC), respectively. Additionally, 15 new FASAC members and 4 new GASAC members began terms in early 2016.
FAF Launches First Phase of Information Technology Enhancement Program
In early 2015, as part of the FAF/FASB/GASB Strategic Plan, the FAF completed its information technology assessment. In August 2015, the FAF Board of Trustees unanimously approved the first phase of this long-term, comprehensive IT enhancement program. The program focuses on ensuring that the organization has the technology resources in place to be as effective and efficient as possible.
The first wave of enhancements began in September 2015. They focused on IT governance policies and procedures, infrastructure upgrades, enterprise content management, and a stakeholder relationship management system. One of the expected outcomes of the technology enhancement program will be opportunities for more efficient collaboration and information sharing among technical project teams, as well as improvements to facilitate and manage communications with stakeholders.
FAF Completes Two Post-Implementation Reviews
In 2015, the FAF Board of Trustees issued two Post-Implementation Review (PIR) reports as part of its ongoing efforts to evaluate the effectiveness of FASB and GASB standards.
In May 2015, the Trustees issued a PIR report on FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, that established accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The PIR report found that the standard generally achieved its purpose and provides useful information to financial statement users. An identified area of improvement included the allocation of net income or loss between a parent company and the noncontrolling interest. The FASB responded by saying it will conduct stakeholder outreach to identify cost-effective solutions that also reduce complexity, without significantly reducing the usefulness of the information.
In November 2015, the Trustees issued a PIR report on GASB Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues. The PIR report found that the standards generally achieved their purpose in terms of their technical, operational, and cost-effectiveness aspects. The GASB said it will consider issues that were raised by some governments in applying certain provisions of the statements.
|"The FAF, the FASB, and the GASB play different roles, but our objectives are the same: to create more transparency in financial reporting so that investors and other users make better decisions that, in turn, lead to the effective and efficient operation of our strong capital markets."|
FAF Chairman Charles H. Noski
FAF Board of Trustees Meeting, Public Session
Norwalk, Connecticut, February 23, 2016
FASB Issues Changes to Consolidations Guidance
In February 2015, the FASB issued guidance to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).
Amendments to the Consolidation Analysis focused on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities.
According to FASB Chair Russell G. Golden, the new standard addressed stakeholder concerns that guidance in certain consolidation situations did not provide useful information, which resulted in requests from financial statement users for supplemental deconsolidated financial statements to analyze the reporting organization’s economic and operational results.
FASB Simplification Initiative Addresses Several Issues
The FASB made substantial progress on its simplification initiative, a series of short-term projects to make narrow-scope simplifications and improvements to accounting standards.
As part of the initiative, the FASB issued seven standards that improved or maintained the usefulness of the information reported to investors while reducing cost and complexity in financial reporting. Areas addressed include extraordinary items, cloud computing arrangements, defined benefit pension plan assets, debt issuance costs, measurement of inventory, measurement-period adjustments, and balance sheet classification of deferred taxes.
Additionally, the FASB issued three final standards to improve employee benefit plan accounting based on consensuses of the Emerging Issues Task Force. The improvements reduced complexity in financial reporting in the areas of defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans.
FASB Proposes Improvements to Not-for-Profit Financial Statements
In April 2015, the FASB issued its proposed improvements to the information provided in not-for-profit financial statements and notes to financial statements. The FASB first undertook this project in 2011 based on recommendations provided by the FASB’s Not-for-Profit Advisory Committee and other stakeholders to refresh the 20+ year old model to make not-for-profit financial statements even more useful to donors, lenders, and other users. Proposed improvements included changes to current net asset classification requirements and information presented in financial statements and notes to financial statements about a not-for-profit organization’s liquidity, financial performance, and cash flows.
In October 2015, the FASB decided to divide its redeliberations into two phases. Phase I focuses on net asset classification scheme and related issues, expenses, improved disclosures for those not-for-profit organizations that choose to present such an operating measure, information useful in assessing liquidity, and methods of presenting operating cash in the statement of cash flows. Phase II focuses on other operating measures not covered in Phase I, as well as realigning certain line items in the statement of cash flows. The Board will continue its redeliberations on both phases throughout 2016.
FASB Issues Three Disclosure Framework Proposals
In 2015, the FASB issued three proposals as part of its broader disclosure framework project to improve the effectiveness of disclosures in notes to financial statements.
In September, the FASB issued for public comment two Exposure Drafts that addressed the use of materiality in:
- Helping organizations employ discretion when determining which disclosures in the notes to financial statements should be considered “material” in their particular circumstances, and
- Helping the Board understand the reporting environment in which it sets financial accounting and reporting standards.
The FASB undertook the project based on stakeholder concerns that the existing discussion of materiality in the FASB’s Conceptual Framework was inconsistent with the legal concept of materiality as established by the U.S. Supreme Court, which led to uncertainty about organizations’ abilities to interpret which disclosures were material and the Board’s ability to identify and evaluate disclosure requirements in accounting standards.
In December, the FASB issued a proposal to improve existing disclosure requirements related to fair value measurement, clarify disclosure requirements, and identify ways to improve the Board’s decision-making process. Fair value measurement is one of four areas where the Board will evaluate and improve existing disclosure requirements. Other areas the FASB said it planned to address include an employer’s disclosure of defined benefit plans, income taxes, and inventory. (Proposed improvements to disclosure of defined benefit plans were issued on January 26, 2016.)
The FASB also announced plans to host a public roundtable to discuss all elements of the disclosure framework project in mid-2016.
FASB Finalizes Standard to Improve Recognition and Measurement of Financial Instruments
In a key decision, the Board voted to permit early adoption of the “own credit” provision in the standard. “Own credit” refers to the accounting effect of changes in the fair value of a financial liability due to changes in an organization’s credit risk.
The new standard addressed what stakeholders identified as a problem in existing GAAP — specifically, a company’s ability to elect to fair value certain debt instruments and recognize changes in fair value related to those debt instruments in earnings. If the debt decreased in price on the market, the liability associated with the debt decreased (because an organization could buy back the debt at a lower price). That decrease was reported as a gain in the income statement.
Financial statement users told the FASB that they found this result confusing and counterintuitive. Under the new standard, fair value changes resulting from own credit for financial liabilities measured under the fair value option in current GAAP are recognized through other comprehensive income (OCI) instead of net income.
FASB Completes Major Decisions on Leases Standard
Also in November 2015, the FASB voted to proceed with a new standard to require companies and other organizations to include lease obligations on their balance sheets. (The final guidance was published on February 25, 2016.) The standard affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment.
The decision to issue the final standard followed extensive stakeholder outreach. The FASB received more than 1,740 comment letters on a 2009 Discussion Paper and two Exposure Drafts (2010 and 2013).
Additionally, the FASB participated in more than 200 meetings with financial statement preparers and users, hosted 15 public roundtables, 15 preparer workshops, and 14 meetings with practitioners, standard setters, and other interested parties. The FASB and the International Accounting Standards Board (IASB) also met with more than 500 financial statement users.
|"The FASB’s ultimate goal is to foster the delivery of accurate and reliable financial information for the investors who provide capital to businesses and other organizations."|
FASB Chair Russell G. Golden
United Nations Conference on Trade and Development
Geneva, Switzerland, November 4, 2015
GASB Issues Guidance on Retiree Healthcare Benefits
In June 2015, the GASB issued standards that align accounting and financial reporting for other postemployment benefits (OPEB), such as retiree healthcare, with the pension standards issued in 2012.
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans provides guidance for plans that administer these benefits.
Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions provides guidance for governments.
According to GASB Chair David A. Vaudt, “The new OPEB standards are intended to provide financial statement users with a clear, consistent, and comprehensive picture of how much governments have promised as part of these retiree benefits — and how much those promises cost.”
To help users and other stakeholders understand the changes to this area of financial reporting, the GASB also provided educational resources including fact sheets, plain-language documents, and videos examining various aspects of the guidance.
GASB Issues Disclosure Guidance on Tax Abatements
Governments often agree to abate or reduce the taxes of individuals and organizations to promote economic development, job growth, redevelopment of blighted or underdeveloped areas, and other actions that are beneficial to the government or its citizens. The effects of tax abatements on a government’s financial health and ability to raise revenue can be substantial, but it had been difficult for users of financial statements to determine the extent and nature of these effects from financial statements.
Tax Abatement Disclosures addressed this issue by providing financial statement users with essential information about these agreements and the impact that they have on a government’s finances.
GASB Initiates a Fresh Look at the Financial Reporting Model
After two years of research and outreach with stakeholders, the GASB initiated a project to reexamine the blueprint of government financial reporting. Added to the GASB project agenda in September 2015, the project focuses on updates and improvements to the financial reporting model, which has been in place since 1999. “During the reexamination, the Board will consider concerns about the complexity of the current financial reporting model and the potential effects on timeliness of financial reporting,” stated GASB Chair David A. Vaudt.
As part of the project, the GASB also assembled a task force that is expected to meet in June 2016 and provide additional input and feedback. In a related initiative, the staff began research on the timeliness of governmental financial reporting, which will consider input from hundreds of governments of varying sizes across the country. It will build upon research originally presented by the GASB in 2011.
GASB Issues Guidance on Investment Pools Ahead of New SEC Rules
In December 2015, the GASB issued guidance for government external investment pools and their participants. The guidance was developed after the U.S. Securities and Exchange Commission (SEC) revised a rule that was referenced in the GASB literature.
Previously, external investment pools and their participants could measure and report investments at amortized cost for financial reporting purposes if they met the provisions of the SEC’s rules for money market funds. Some of the administrative provisions of the revised SEC rule would have been difficult for pools and their participants to meet, meaning they would no longer be able to use amortized cost.
Certain External Investment Pools and Pool Participants establishes criteria for determining if pools qualify to measure and report pool investments at amortized cost instead of referencing the SEC’s rules. Prior to issuing the guidance, the GASB conducted extensive outreach with key stakeholders, including public officials, to assess the effect of the SEC changes and their impact on governmental financial reporting.
|"The GASB works closely with users to ensure our standards provide them with the information they need to make informed decisions about governments. The user perspective is a critical ingredient in the development of high-quality accounting standards."|
|GASB Chair David A. Vaudt|
Fair Value Measurement and Application [February 2015]
Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 [June 2015]
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans [June 2015]
Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions [June 2015]
The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments [June 2015]
Tax Abatement Disclosures [August 2015]
Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans [December 2015]
Certain External Investment Pools and Pool Participants [December 2015]
Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items [January 2015]
Consolidation (Topic 810): Amendments to the Consolidation Analysis [February 2015]
Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs [April 2015]
Compensation — Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets [April 2015]
Intangibles — Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement [April 2015]
Business Combinations (Topic 805): Pushdown Accounting — Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115 (SEC Update) [May 2015]
Financial Services — Insurance (Topic 944): Disclosures about Short-Duration Contracts [May 2015]
Technical Corrections and Improvements [June 2015]
Inventory (Topic 330): Simplifying the Measurement of Inventory [July 2015]
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date [August 2015]
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments [September 2015]
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes [November 2015]
Final Standards Resulting from Emerging Issues Task Force (EITF) Consensuses
Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions [April 2015]
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) [May 2015]
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient [July 2015]
Derivatives and Hedging (Topic 815): Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets [August 2015]