FASB Publishes Comments Received from Comment Request on Accounting Standards

On June 24, 2021, the Financial Accounting Standards Board (“FASB”) staff issued an Invitation to Comment, Agenda Consultation (“ITC”) seeking broad stakeholder feedback about the FASB’s standard-setting process and its future agenda for standard-setting.

On February 22, 2022, the Securities and Exchange Commission (“SEC”) Acting Chief Accountant Paul Munter released a summary of the comments that the FASB received from over 500 stakeholders.

At the forefront of this feedback were comments reminding the FASB that the purpose of financial reporting was to “provide decision-useful information to investors and other users of financial reports” and to encourage it to only engage in projects on its agenda or make changes to its standards in accordance with this purpose. Munter reminded the FASB that this means consideration of the cost to users that could be incurred if the changes are not made as well as that which would be incurred as a result of the changes.

Additionally, commenters noted that the any agenda which is established should be consistently reviewed to ensure that the current industry environment warrants proposed changes or projects. Munter encouraged that if, upon subsequent evaluation, the FASB determines that the purpose of the project has been fulfilled or is no longer necessary, the FASB should amend their agenda to reflect these environmental changes.

The most frequently received feedback to the proposed agenda is as follows.

Disaggregation of Financial Reporting Information

The FASB has proposed a project to enhance disaggregation, commonly defined as the separation into component parts, and granularity, commonly defined as being broken down into smaller parts, in financial reporting. The FASB has proposed that the greater breakdown of information be contained  either on the face of the financial statements or in the notes within. This change is intended to provide investors with better, clearer, and more useful information and an enhanced understanding of the financial documents presented to them which directly influence the decisions they make and behaviors they exhibit in making institutional decisions.

Comments received evidence a consistent opinion that greater disaggregation of financial reporting information that is contained in documents such as the income statement, statement of cash flows, or financial statements should be among the FASB’s top priorities.

According to Munter, the FASB should have sufficient commentary to be able to establish standards that meet the needs of investors in that area and encouraged the FASB to consider investors and stakeholder input in doing so. Munter further advised the FASB to maintain considerations of efficiency, such that due process is ensured, and the cost to the institution in complying with these enhanced standards—which Munter admitted is less of a concern today due to technological advances.

Still, Munter recognized that there are already laws in place to ensure books, records, and accounts are kept in sufficient and accurate detail that would provide the same information to investors or stakeholders.

Climate-Related Transactions and Disclosures

Although commenters acknowledged the current lack of climate-related transactions in the financial sector, the general consensus is that the FASB should continue to monitor environments which would implicate these types of transactions and consider increases in disclosure requirements for climate-related issues on financial statements.

Munter encouraged the FASB to “take thoughtful action” to better reflect climate-related issues on accounting, disclosure, and financial reporting, such as the risks and uncertainties in this area, while maintaining the general purpose of financial statements. Additionally, Munter encouraged investor and stakeholder outreach and establishing a clearly defined scope for any standard that may be set in this area.

Digital Assets

Feedback concerning digital assets reflected the industry expectation that use of these assets will significantly increase in the future and suggested that the FASB permit or require these asset issuers to account for certain digital assets at fair value.

In response to the feedback, FASB has officially added a project to its research agenda on the accounting for exchange-traded digital assets and commodities. The research will include continuation of stakeholder engagement and monitoring of responses to establish a proper scope for any standards that will be establish and determine the necessary accounting and disclosures in this currently evolving market. Munter noted that this state of change should be considered by the FASB in establishing its standards, but, overall, appeared to support such efforts.