From the Chairman's Desk
By Russell G. Golden, FASB Chairman

At the FASB, we often are asked how we think about the trade-off between the costs and the benefits of the standards that we set.

On the one hand, preparers sometimes express concern that new standards intended to provide investors with better information about the financial position of companies can be costly to implement. On the other, investors and other users of financial statements sometimes tell us that we should go farther in requiring an accounting approach to disclosure of financial information that they regard as potentially more useful.

So how do we seek to strike the right balance?

Understanding the costs and benefits of a proposed standard is critically important to our stakeholders—as they want to be satisfied that the expected benefit of an accounting standard justifies the cost of implementing it.
Understanding the costs and benefits of a proposed standard is critically important to our stakeholders—as they want to be satisfied that the expected benefit of an accounting standard justifies the cost of implementing it. It also is important to FASB members as they deliberate solutions to improve the transparency of our capital markets.

Many stakeholders are familiar with our benefit analysis of our proposals. I attribute this to the link between benefit analysis, our due process, and the FASB’s mission to “establish and improve standards that foster financial reporting that provides useful information to investors and other users of financial reports.”

We begin this process with what we call “pre-agenda” research. At this stage, we carefully consider whether there really is a problem that we should address. If we conclude that there is, we work to clearly articulate the issue and evaluate the range of possible cost-effective solutions.

Then we assess the potential benefits by gathering evidence about whether changes to accounting and financial reporting would:
  • Accurately and neutrally reflect the underlying economic transactions and events
  • Improve or diminish comparability of reported financial information domestically and internationally, and
  • Affect the effort or cost of using the information.
Stakeholders may be less familiar with the way we conduct cost analysis for proposed changes, but they are just as important as our benefit analysis.
Stakeholders may be less familiar with the way we conduct cost analysis for proposed changes, but they are just as important as our benefit analysis. Concurrent with our assessment of the proposals’ benefits, we also conduct outreach and gather evidence about the effects of the changes, especially those related to:
  • The process of preparing and distributing the information, including the effort required to collect, analyze, and process the information
  • Whether the change would create a difference between GAAP and contractual, regulatory, or tax requirements, requiring companies to maintain multiple accounting systems
  • The effort and cost involved in auditing the information, and
  • The effort involved in implementing the change, including costs to understand the new requirements, systems changes, potential competitive harm to preparers, and so forth.
Cost analysis techniques that we employ include asking organizations specific questions about the number of new employees or outside consultants that would be required to implement the new standard – and the additional time that would be needed to meet the new requirements. We also ask about the need to develop new or modified accounting systems. While we do not attempt to develop models to project the total costs that all preparers would incur, we believe that analyzing projected cost increases for a cross section of different companies leads us to an equally useful result.
When cost analysis is performed, we sometimes are asked by stakeholders if our analysis takes into account the economic impact of proposed accounting standards. In fact, the FASB does consider the potential consequences of new standards to businesses and industry sections, but that analysis is separate and distinct from the cost-benefit analysis.

We strongly believe that accounting standards are intended to neutrally reflect economic activity and behavior.
Our aim is to create a neutral playing field that enables investors, lenders, and other users of financial statements to make their own independent judgments about where to invest, based on the best possible information available. Therefore, we strongly believe that accounting standards are intended to neutrally reflect economic activity and behavior.

That being said, the FASB recognizes that accurate financial reporting can have economic consequences, both positive and adverse.

Positive consequences include fostering economic growth, by promoting more efficient capital allocation, greater market liquidity, a lower cost of capital, and a better allocation of capital.

On the other hand, improved financial reporting sometimes can result in adverse economic consequences for some organizations, especially if that reporting sheds light on an area that previously was not transparent.

For example, new financial reporting rules may require a company to reveal liabilities it previously had not been required to show in its financial statements. This new information could result in reduced capital flow or an increased cost of capital for that business. It also could result in some businesses having difficulty attracting and retaining talented employees, or in some extreme cases, result in the failure of a poorly run business.

The FASB’s objective in analyzing those concerns is to determine, to the best of its ability, the neutrality of the information and whether those potential consequences are the natural result of more relevant and neutral financial information, or the consequences of unintentional bias resulting from the proposed standard.

If that analysis reveals unintentional bias, the Board evaluates the need to restore and promote neutral reporting.

If an analysis reveals that proposed financial reporting outcomes are representationally faithful/neutral, materially complete, and presented in a way that allows users to comprehend its meaning and significance—then the Board should not attempt to alter financial reporting to mitigate such effects.
Obtaining a balance between costs and benefits is a daunting endeavor, and our stakeholders are heavily vested in the outcome. That is why we integrated cost-benefit analysis into each major standard-setting phase.
Obtaining a balance between costs and benefits is a daunting endeavor, and our stakeholders are heavily vested in the outcome. That is why we integrated cost-benefit analysis into each major standard-setting phase.

The FASB is committed to eliminating costs in financial reporting when our due process indicates that the benefits to financial statement users are not justified by the costs, putting an unnecessary burden on companies and other preparers of financial reports.

At the same time, we remain committed to ensuring that users of financial statements—investors, lenders, and others—are provided with transparent, neutral, and useful information about an organization’s financial condition that enables them to make informed decisions about how to allocate their capital.
Input from investors, preparers, and auditors can help us create the right balance.


Taking this dual approach, the FASB strives to improve financial reporting in the most cost-effective manner. Input from investors, preparers, and auditors can help us create the right balance. By lending your voice to our activities, you can provide meaningful feedback on projects that affect you and help improve our standards.