December 6, 2022
The Financial Accounting Standards Advisory Council (FASAC) held its quarterly meeting on Tuesday, December 6, 2022. The FASB chair provided highlights on FASB activities that were not otherwise on the agenda for the Council meeting, and SEC, AICPA, and PCAOB staff members commented on current issues and activities. Council members discussed the following topics:
Segment Reporting: Council members discussed proposed Accounting Standards Update—Segment Reporting (Topic 280) —Improvements to Reportable Segment Disclosures. Council members who are investors and other allocators of capital (collectively “investors”) commented upon the importance of public entities reporting high quality information at both the segment and consolidated level and noted that diversity that exists among public entities’ typical segment level disclosures. Overall, those Council members supported the proposal to require a public entity to disclose (a) the significant segment expenses by reportable segment, (b) other segment items by reportable segment, and (c) a description of those other segment items; noting that the information would be useful to understand the changes over time.
Council members commented that evaluating whether a segment expense is significant involves judgment. Some Council members would prefer that the Board clarify how the significance threshold within the proposal should be applied. Preparers also noted that the significance of a segment expense may vary from period to period. Many Council members suggested the Board include additional illustrative examples.
Council members commented about the potential interaction of the proposed guidance that would permit a public entity to disclose more than one measure of a segment’s profit or loss with SEC views on presenting non-GAAP measures. Some Council members noted that proposed guidance would be particularly relevant for companies that currently disclose their business activities as a single reportable segment.
Some Council members inquired how the amendments in the proposed Update interact with the Board’s project on disaggregation of income statement expenses.
Accounting for Government Grants: Council members discussed the FASB’s research project on the accounting for government grants and whether certain recognition, measurement, and presentation requirements in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, should be incorporated into GAAP for business entities. Overall, Council members indicated support for the development of one accounting model for the recognition, measurement, and presentation guidance for government grants. Those Council members, including investors, noted that one accounting model would reduce the diversity that exists in current practice and would increase consistency among companies.
Council members noted that the scope of a potential project could be challenging. Some Council members, including preparers and practitioners, suggested the project address a narrow subset of government grants, such as the receipt of cash grants, because it would be more operational and could be developed more expeditiously. Council members also suggested that the Board leverage the existing description of a government in Topic 832, Government Assistance.
Council members expressed mixed views about whether IAS 20 or current principles within GAAP, such as the accounting for contributions in Subtopic 958-605, should be leveraged as a starting point. Certain Council members highlighted that Subtopic 958-605 has less optionality than IAS 20 and has principles that are more consistent with other areas of income recognition in GAAP such as Topic 606, Revenue from Contracts with Customers.
Most Council members, including investors, favored gross presentation on the balance sheet and income statement and suggested that the Board also provide presentation requirements for the statement of cash flows. Other Council members, including preparers and practitioners, indicated that an option for net presentation, for example for grants related to assets, should be permitted.
Select FASB Projects: FASB staff provided an update on select projects. The two projects that generated the most discussion among Council members were Targeted Improvements to Income Tax Disclosures and Disaggregation—Income Statement Expenses.
Improvements to Income Tax Disclosures: Council members asked clarifying questions about the Board’s recent decisions. Investors and other Council members indicated support for the Board’s recent decisions to require more disaggregated information within the rate reconciliation and additional disclosures of the amount of cash taxes paid by jurisdictions to improve transparency.
Disaggregation—Income Statement Expenses: Council members and Board members discussed the objectives of the project, including how those objectives compared to the objectives in the International Accounting Standards Board’s Primary Financial Statements project. Council members also provided feedback on whether employee compensation should be defined, whether employee compensation should be disaggregated by type, and whether the Board should define selling expenses or provide management latitude in determining which expenses should be classified as selling expenses.
FASAC Meeting Recaps are provided for those interested in following the activities of the FASAC. More details on the FASAC’s input on the FASB’s projects can be found at FASB.org. Official positions of the FASB are reached only after extensive due process & deliberations.