Serving the Financial Statement User
Serving the capital markets by providing useful information to financial statement users is at the core of what we do.
Financial statement users—including institutional investors, retail investors, lenders, donors, bond buyers, citizens of state and local governments, and other resource providers—rely on information produced using accounting standards to make decisions about how well an organization or state or local government is managing its resources.
That information is used to decide many things, including
- How to invest capital
- Where to lend money
- Where to donate money, and
- How public officials are spending tax dollars.
While not all users analyze information in the same manner, they all share a desire for financial reports that are comparable and provide relevant information that faithfully represents the results of an organization’s or government’s economic activities.
In the following pages, we’ll look at how the Financial Accounting Foundation (FAF), the Financial Accounting Standards Board (FASB), and the Governmental Accounting Standards Board (GASB) serve the financial statement user.
We also will introduce you to a diverse group of financial statement users who share, in their own words, why high-quality accounting standards are important to the work that they do.
A Note from the FAF
High-quality accounting standards provide financial statement users with information to make sound decisions on how to invest, lend or donate money — and whether public officials are spending their tax dollars wisely.
The Financial Accounting Foundation (FAF) supports the creation of high-quality standards, the core of our mission, by providing the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) with the resources needed to set high-quality standards while ensuring the independence and integrity of the standard-setting process.
In 2015, the FAF fulfilled its role in several areas. For example, we executed initiatives contained in the FAF/FASB/GASB Strategic Plan, including completion of our three-year review of the Private Company Council (PCC) and improvements to our technology infrastructure. We also conducted extensive searches for key roles within the FAF, FASB, and GASB.
In November 2015, the FAF Trustees issued our report on the PCC review. Private company stakeholders told us that the PCC has succeeded in addressing the needs of financial statement users, while also reducing costs and complexity for preparers. Targeted improvements to the PCC included increasing transparency around its discussions and views and establishing an agenda consultation group.
The Strategic Plan also called for the development of a technology strategy to meet the needs and priorities of our organization. Benefits of that strategy — launched in late 2015 — include more efficient collaboration and information sharing among technical project teams, as well as improvements to how we manage and facilitate stakeholder communications.
The FAF Trustees also focused on filling key roles within our organization.
The Trustees appointed Brian Caputo to succeed Marcia Taylor on the GASB, effective July 2015. With FASB Member Tom Linsmeier and GASB Member Bill Fish completing their terms in June 2016, the FAF began the search for their successors. The Trustees announced that Christine Botosan will succeed Tom as of July 1. The search for Bill’s successor is continuing. We thank Marcia, Tom, and Bill for their outstanding service.
The FAF also appointed new chairs of the PCC (Candy Wright), the Governmental Accounting Standards Advisory Council (Robert Scott), and the Financial Accounting Standards Advisory Council (Andrew McMaster). We appreciate their willingness — and that of their predecessors, Billy Atkinson, Marty Benison, and Steve Buller, respectively — to support our mission.
In January 2016, we welcomed Chuck Allen, Christine Cumming, Gene Flood, Ken Robinson, and Diane Rubin as new Trustees. They join a diverse group of experts who share a commitment to transparent financial reporting for investors and other financial statement users. We said farewell to retiring Trustees John Davidson, Steve Howe, and Mack Lawhon, each of whom served the FAF with distinction.
Through our oversight and support roles, the FAF will continue to promote high-quality standards that serve financial statement users. Your continued involvement will ensure a successful 2016.
Postscript from Terri Polley
In January 2016, we welcomed Charles H. Noski as chairman of the FAF. Chuck brings a distinguished background in accounting and financial reporting, having served as chief financial officer, audit committee chair, and in other senior executive and governance roles at major U.S. corporations. Chuck also chaired the Financial Accounting Standards Advisory Council from 2012 to 2013.
Chuck succeeded Jeff Diermeier, former president and CEO of the CFA Institute, whose term ended in 2015. A Trustee since 2009, Jeff was elected chairman in late 2012. As chairman, Jeff presided over a number of successful initiatives, most notably the launch of the PCC. We greatly appreciate his service.
Charles H. Noski
Financial Accounting Foundation
Teresa S. Polley
President and CEO
Financial Accounting Foundation
A Note from the FASB
Investors, lenders, donors, and other financial statement users rely on GAAP to understand the performance and financial condition of an organization. In 2015, the Financial Accounting Standards Board (FASB) focused on major areas that users told us are in need of improvement — including revenue recognition, leases, and financial instruments — while looking ahead to our future agenda.
Throughout 2015, the FASB — along with its Revenue Recognition Transition Resource Group (TRG) — made significant progress in addressing implementation challenges related to the standard (published in 2014). In fact, as of February 2016, the TRG had discussed almost all issues submitted by our stakeholders.
Based on TRG discussions, the FASB initiated projects identifying performance obligations and licensing, principal versus agent considerations, and narrow-scope improvements and practical expedients. TRG meetings will continue in 2016 insofar as there continue to be issues that need addressing.
In November 2015, the FASB approved the final leases standard. Published in February 2016, the guidance will result in a more faithful representation of leasing activities by requiring organizations that lease assets to recognize on the balance sheet the assets and liabilities created by those leases. It also requires more disclosures around the commitments associated with those transactions.
Throughout the development of the new leases guidance, preparers, auditors, and other practitioners provided input that helped us develop a cost-effective, operational standard that balances the investor’s need for more transparency. I thank all stakeholders and FASB members and staff members who helped bring this important project to a successful completion.
Also in 2015, the FASB continued deliberations on its financial instruments projects, including recognition and measurement, credit losses, and hedging. The FASB voted to proceed with a final standard to improve and simplify the recognition and measurement of financial instruments. This included the decision to allow companies to early adopt a provision related to “own credit” — the accounting effect of changes in the fair value of a financial liability due to changes in an organization’s credit risk — to make it less confusing and more intuitive.
The FASB also continued deliberations on its upcoming guidance on measuring credit losses. The final standard — expected to be published in mid-2016 — will require a forward-looking “expected loss” approach instead of the “incurred loss” approach in effect today.
In late 2015, the FASB convened its Credit Losses TRG, whose members include financial statement preparers (including community banks and credit unions), auditors, users, and regulators. The TRG was created prior to the issuance of the standard so that members can review and provide input on the draft guidance before it is final. With its first public meeting held in April 2016, the TRG will continue to help the FASB proactively address questions and concerns from a wide variety of stakeholders, including community banks and credit unions.
Finally, the Board considered targeted improvements to the hedge accounting model based on feedback from stakeholders. We plan to expose our proposed improvements for public comment in mid-2016.
In 2016, the FASB also will continue work on our disclosure framework project, with a public roundtable planned later in the year to collectively consider feedback on all phases of the project.
With the completion of major projects in 2015 and early 2016, the FASB soon will issue an Invitation to Comment that seeks input from our stakeholders on potential future agenda items. We encourage each of you to review it and provide feedback.
On behalf of the FASB, I thank you for your continued support of our mission to develop high-quality accounting standards that provide relevant information — in an efficient, cost-effective manner — to investors and other users.
Russell G. Golden
Financial Accounting Standards Board
A Note from the GASB
Meeting the needs of financial statement users guides almost everything we do at the Governmental Accounting Standards Board (GASB).
Municipal bond holders rely on financial statements produced following GASB standards to make sound investing decisions. Taxpayers, citizen groups, and other users rely on government financial statements to assess how leaders are utilizing public resources.
In 2015, the GASB focused on serving the user by conducting outreach, issuing standards that provide users better information about retiree benefits and tax abatements, and initiating a project to refresh the financial reporting model.
As envisioned when we created her leadership role in 2014, GASB Vice Chair Jan I. Sylvis has been instrumental in facilitating greater engagement among users and other stakeholders who traditionally have been less involved in our process. While these stakeholders don’t always focus on how standards function, they are very interested in the potential impact on policy matters of governments.
Consistent with this objective of increased engagement, we broadened and strengthened the Board’s relationships with organizations that include elected officials, like the National Association of Counties, the National League of Cities, the National Council of State Legislatures, and the National Governors Association. We’re encouraged by the positive response from these groups — and we’re working to address their constituents more broadly through their conferences and events, webinars, and shared information on websites and in newsletters.
This approach not only provides us with a better understanding of our stakeholders’ key concerns — it also expands opportunities for more diverse input into the standard-setting process.
In keeping with our mission to better serve financial statement users, in June 2015, the Board issued its standard on retiree healthcare benefits. The standard promotes a more consistent approach to accounting for postretirement benefits — one that ultimately will allow users to make decisions based on a comprehensive package of information about the long-term obligations and costs of the benefits governments promise to their employees.
In August 2015, the Board issued new guidance on tax abatement disclosures, which is intended to provide users with critical information about these agreements, including their dollar value, which often was not publicly reported.
Interest in tax abatements goes well beyond the traditional user community. In fact, the Board received close to 300 comment letters on the proposal, which was widely covered by the news media. The new requirements will enable users to better assess the impact of these agreements on a government’s financial health and ability to raise revenue.
Finally, in 2015, the GASB also decided to take a fresh look at the financial reporting model that’s been in place for more than a decade. As the blueprint for government financial statements, the model has had a pervasive influence over the effectiveness of financial reporting by governments and their ability to achieve key financial reporting objectives. The project was initiated in September 2015, following two years of extensive pre-agenda research — including significant outreach with users.
In 2016, the GASB will build on the momentum of 2015 by continuing to engage users and all stakeholders in our activities. We also will continue to monitor and address their questions about our retiree healthcare benefits and tax abatement standards. Finally, we’ll look to you for input as we work to improve the existing financial reporting model.
On behalf of the Board, I would like to express my thanks to everyone who participates in the GASB’s due process and outreach efforts. Your contributions are invaluable — and I encourage you to continue to share your views with us.
David A. Vaudt
Governmental Accounting Standards Board