GAAP and IFRS

FASB Pops the Questions

The 2006 survey of FASB's advisory group asks whether domestic concerns trump international convergence.
Marie LeoneAugust 7, 2006

Required summer reading: Once, that meant dragging a sandy, Coppertone-stained copy of Homer’s Iliad to the beach in final summer weeks before school — and Classic Lit 401 — started up again. If members of the Financial Accounting Standards Board’s Advisory Council (FASAC) thought those days were long gone, think again.

Their August assignment: Answer FASB’s “Priorities of the Financial Accounting Standards Board” survey, due back to the board by August 31.

Released in late July, the survey was sent to the Advisory Council’s 33 members to solicit opinions about the upcoming year’s agenda. The short, nine-page survey breaks down questions into four categories: FASB’s priorities; future financial reporting issues; international convergence; and educational efforts.

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The thorniest issue in this year’s poll seems to focus on international convergence. In February, the FASB and the International Accounting Standards Board formalized a long-held understanding by declaring that the global capital markets would benefit from a common set of accounting standards, and agreed to work together on a convergence project. In an unusual question — given FASB’s existing commitment to that goal — the 2006 survey asks whether council members support the notion of international convergence, as well as what FASB’s role should be if global standards were enacted.

“Obviously, convergence is a major component of the Board’s current work plan so it’s important to get their views on that topic,” FASB spokesman Gerard Carney told CFO.com. Further, noted Carney, international convergence is just one of many topics addressed by the survey, which he says provides an “annual temperature check of constituents.”

The questionnaire winds up the convergence section with a blunt question, asking if it would ever be “appropriate to forgo or delay convergence if a pressing need exists domestically?” Indeed, the survey presents a hypothetical situation in which FASB identifies a critical standards project that will take four years to craft into a new US rule, but seven years to rewrite into a new international rule.

More broadly, the survey invites council members to list projects that should be added to, or deleted from, FASB’s priorities list, which now contains everything from developing a conceptual framework to accounting for goodwill in a not-for-profit merger. The survey also asks whether specific business, industry, or economic trends might give rise to financial reporting issues, and whether the board should be in the business of producing training and educational materials.

The 2006 lineup of questions differs slightly from last-year’s handout, which also solicited opinions about FASB priorities and the future of financial reporting. In 2005, council members were asked about simplifying rules and guidance, the level of implementation guidance that should be offered, and the potential of delivering modified standards for public companies.

The results of last year’s survey, released in October, were relatively predictable. Consider that for the fourth consecutive year, respondents said revenue recognition should be the number one priority for FASB, with fair value, lease accounting, and stock compensation arrangements also requiring “the board’s full attention.”

To an extent, FASB took that advisory council’s advice. Revenue recognition and lease accounting have been designated as major standards projects being developed jointly with IASB. In general, the revenue recognition proposal is aimed at establishing a single, comprehensive standard that would eliminate inconsistencies and fill voids in existing guidance, while being careful not to create future inconsistencies. Preliminary views from FASB on that proposal are due out during the second quarter of 2007

In July, lease accounting was added to FASB’s formal agenda, setting in motion a rewrite to the rule that allows companies to keep certain leases off their balance sheets. Amendments to FAS 13, Accounting for Leases, are expected to be issued in 2009 at the latest.

Meanwhile, fair value has been discussed in the context of individual rules, such as those related to accounting for derivatives, stock option grants, and pensions. It remains a hotly debated topic as FASB pushes in general for fair value measures over historical cost accounting. Many preparers, however, prefer the comfort of the existing system.

Last year’s survey results also suggested that simplification efforts could be achieved by field testing proposed standards more aggressively, giving additional weight to cost-benefit considerations, and using more examples to illustrate concepts. And while the 2005 results were inconclusive about whether the board gives too much, or too little guidance, most council members said that a separate set of accounting standards for private companies is not warranted.

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