Message from the
FAF Chairman and
FAF President and CEO

For standards to work now and in the future, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) need the right people, process, infrastructure, and support.

The Board of Trustees of the Financial Accounting Foundation (FAF) strives to ensure that the FASB and the GASB have what they need to be successful in achieving their missions.

In 2018, FAF Trustees recruited and appointed high-quality candidates to the standard-setting Boards and their advisory councils and continued to monitor the Boards’ standard-setting processes and outreach to stakeholders. The FAF management team supported the Boards’ work through infrastructure improvements. And both advocated for the independent standard-setting process.

One of the most important Trustee responsibilities is to recruit professionals from diverse talent pools and varied backgrounds to ensure a balance of perspectives across the Boards and their advisory groups.

The Trustees fulfilled this role in 2018 by:

• Appointing portfolio manager and research analyst Gary Buesser and (in April 2019) Technical Director Susan Cosper to the FASB
• Conducting searches that led to the appointments (in April 2019) of Mary Barth and David Lillard, Jr. to the FAF Board of Trustees
• Appointing new (and reappointing, where applicable) members to the Financial Accounting Standards Advisory Council (FASAC), the Governmental Accounting Standards Advisory Council (GASAC), and the Private Company Council (PCC), and
• Reappointing GASAC Chair Robert Scott and PCC Chair Candy Wright, who have shown great leadership of their respective advisory groups.

With FASB Chairman Russ Golden and GASB Chairman Dave Vaudt completing their terms in 2020, the Trustees also began to plan the strategy for future leadership of the standard-setting Boards. In 2018, we started to think about how the roles might evolve. We began asking stakeholders for their thoughts on the key strategic challenges that the Boards will face and the relevant qualities, backgrounds, and experiences that the Trustees should look for in Board chair candidates.

As the Trustees continue this work in 2019, we expect further stakeholder input to inform our thoughts about the next generation of leadership.

Appointing the right people to these positions is only one part of the Trustees’ role to ensure that the Boards set high-quality standards. Another part is conducting proper oversight.

In 2018, the Trustees’ Standard-Setting Process Oversight Committee continued to monitor the Boards’ standard-setting processes by meeting regularly with the chairs of the FASB and the GASB to discuss, among other things, progress on their agenda projects, adherence to their due process procedures, and external influences that may impact their standard-setting processes. In addition, the Oversight Committee met with the chairs of the FASAC, the GASAC, and the PCC and individual Trustees observed meetings of those groups. By holding the FASB and the GASB accountable for a transparent, comprehensive, and independent standard-setting process, the Trustees help ensure that the Boards develop high-quality financial accounting and reporting standards that best serve the needs of financial statement users.

Advocating for the FASB and the GASB’s independence and the integrity of the standard-setting process is also an important Trustee responsibility. In 2018, the FASB, the GASB, and the FAF continued to collaborate to address fresh challenges to the independent standard-setting process. Our advocacy creates space so that the Boards can conduct an independent, comprehensive, and inclusive process free from real or perceived conflicts of interest.

The right people and the right process are important to standards that work—and so is the right infrastructure. The FAF management team worked to improve that infrastructure for the benefit of the Boards, their staffs, and their stakeholders.

In 2018, we launched a project for our largest technological transformation since the FASB Codification was launched in 2009: a new and improved publishing platform.

The new publishing platform will enable the FASB and the GASB to fulfill their standard-setting mission through next generation technology systems to publish and distribute their content. In short, the platform will provide a more modern technology platform for all users. We look forward to sharing updates on this exciting initiative as we roll out the new technology to our stakeholders.

The FAF is committed to the success of the FASB and GASB—for today and for the future. On behalf of the FAF, we thank you for inspiring our work in the past and present, and for helping us rise to meet the future of financial reporting.

Sincerely,

Message from the
FASB Chairman

FASB stakeholders are a diverse group, so there’s rarely a “one-size-fits-all” approach to serving all of them.

Financial statement users want standards that help them decide where to invest capital, or where to lend or donate money. Preparers want standards they can understand and implement at a reasonable cost. And auditors want standards that they can audit effectively.

One thing everyone agrees on, though: financial reporting is rapidly changing. And accounting standards need to keep up. In 2018, we fostered a culture dedicated to standards that work for all—including public companies, private companies, not-for-profit organizations, employee benefit plans, and their respective stakeholders.

But we also challenged ourselves to look ahead and ask how our standards should evolve to meet future needs. We discovered that what we do to make standards work today will help us make them even better tomorrow.

Take, for example, how we help preparers (and their practitioners) implement our standards. With private companies slated to adopt revenue recognition in 2019, we spent 2018 producing webinars, videos, Q and As, and even a “train the CPE trainer” program to help private companies successfully make the transition.

These resources were developed over years of trial and error with previous standards. In this case, we also drew on the experience of public companies (that implemented “rev rec” a year earlier) to fine-tune these resources and address issues private companies may not have anticipated.

We’ll repeat this approach with leases, which public companies will implement in 2019. To ensure a successful and timely transition, in 2018, we clarified our leases guidance to help preparers and auditors implement the standard. And for investors, we created webinars about the changes they can expect when standards on both leases and hedging take effect.

In 2018, we also addressed questions on credit losses, leveraging the credit losses transition resource group as a forum to discuss those concerns. Based on the discussions and other input, we issued final and proposed narrow-scope adjustments to the guidance. We also improved accounting for not-for-profit grants and contracts, cloud computing arrangements, and insurance companies that issue long-duration contracts (namely, life insurance).

Experience (and plenty of research) likewise guided our work on standards to be issued in the next three to five years. Our focus is to provide investors with better information without imposing unnecessary cost and complexity on the preparer.

Through current agenda projects, we’re looking at cost-effective ways to give investors more information about a company’s financial performance. In 2018, the FASB staff conducted extensive outreach with preparers to help us better understand the potential costs of separating (or disaggregating) information in certain income statement line items to provide investors with greater transparency. In a related project, the staff surveyed public companies on how they use segment reporting. We’re analyzing what we learned through these efforts to determine our next steps on these projects.

The Private Company Council (PCC) continued to help us improve financial reporting for all stakeholders. Based on the PCC’s earlier work, we issued a proposal that would reduce the cost and complexity of accounting for goodwill and measuring certain identifiable intangible assets for not-for-profit organizations. We’ve also added an agenda project that would look at extending this proposal to public companies and plan to issue an Invitation to Comment on many aspects of what we need to consider in the coming months.

To better understand the direction of financial reporting worldwide, we continued to collaborate with international standard setters. Our 2018 meetings with the International Accounting Standards Board, the Accounting Standards Board of Japan, and the Accounting Standards Board of Canada, among others, allowed us to share research and potential approaches to similar standard-setting matters to benefit our respective stakeholder groups and capital markets worldwide.

Finally, to peer even further into the future, the FASB initiated a study to understand how financial reporting technology is being used by companies and investors, and how it might evolve. This information will help us develop a plan on how to develop standards that are responsive to future needs and technological changes.

It may be true, as baseball legend Yogi Berra reportedly once said, that “it’s tough to make predictions, especially about the future.” One prediction we can make with conviction, however, is that your input is critical to our ability to “rise” to the challenge of excellence in financial reporting. We thank you for your continued participation in our process, and for your support of standards that will work for many decades to come.

Sincerely,

Russell G. Golden, Chairman

Message from the
GASB Chairman

Setting accounting standards is always a juggling act. At any given time, we have to keep our eye on the immediate needs of stakeholders to implement current accounting standards, make progress on projects to improve GAAP in the next year or two, and think about longer-term changes that will shape the future of financial reporting. The Board attended to all of these challenges in 2018.

New Educational Resources

Focusing on stakeholders’ most immediate needs, we developed educational resources to assist them as they adopt new GASB standards.

Among the best tools the Board has to help governments successfully adopt new guidance are our “Q&A” guides. These guides provide authoritative answers to questions we receive at presentations across the country, through our technical inquiry system, and in other ways.

Driven by stakeholder questions in 2018, we developed draft Q&A guides for our recent standards on fiduciary activities and leases. We plan to publish final guides mid-year.

Our User Guides translate accounting standards into a plain-language form to assist investors, analysts, and others in understanding the information presented in a government’s financial report. We published three new editions of the User Guide Series in 2018. The new User Guide editions address school district finances, business-type activities, and include an updated guide for financial statement analysts.

Evolving Transactions and the Changing Landscape

The next wave of changes to financial reports addresses some of the most dynamic parts of public finance. In 2018, we focused on four specific projects of interest to stakeholders.

As public-private partnerships continue to evolve, so does our guidance for them. While current GASB standards cover many “P3s,” we’re revisiting how we define them, considering the effectiveness of current disclosure requirements, and taking a fresh look at recognition and measurement issues.

Our work on subscription-based information technology arrangements will provide guidance for transactions involving the digital cloud and other remote data storage networks. It’s key that GASB standards keep pace with developments that underlie these increasingly prevalent transactions.

Based on current financial reporting standards, governments report conduit debt in different ways. To promote consistent application, we’ll issue guidance that more clearly defines these arrangements and describes how governments would consistently report conduit debt, including any additional commitments associated with those transactions.

Finally, with the future of London Interbank Offered Rate (LIBOR)-based benchmarking instruments in flux, we’re working on how the transition to other rates should be accounted for in the financial statements.

Progress on “The Big Three”

From a long-term perspective, we’re working on the “The Big Three”—the Financial Reporting Model, Revenue and Expense Recognition, and Note Disclosures.

Looking at these related areas at the same time lets us take a big picture view of state and local government financial reporting to identify opportunities for improvement.

The Financial Reporting Model project considers what the future financial reports should ultimately present. In 2018, we issued a draft of our early thinking for stakeholder comment in the form of a Preliminary Views document. Now we’re analyzing the input we received.

At the same time, the Board is weighing when revenues and expenses should be recognized within the model. We issued a document for stakeholder comment in 2018 and continue to work on a proposal that integrates the issues that have been identified as a result of the due process feedback.

As those projects progress, the next question becomes: what disclosures would provide a more informed understanding of the financial statements? In creating a disclosure framework, we’re examining how disclosures meet stakeholder needs—and what changes may be required.

Thank You for Your Input!

The most important element of building a solid foundation of accounting standards is listening carefully to the rich and diverse input from our broad range of stakeholders and incorporating those ideas into our work.

On behalf of all of us at the GASB, I’d like to thank everyone who shared their views with us in 2018. The input, ideas, and perspectives you offered helped inform the Board’s activities and provided insight to help us rise to meet user needs.

Sincerely,

David A. Vaudt, Chairman