June 9, 2022
The Financial Accounting Standards Advisory Council (FASAC) held its quarterly meeting on Thursday, June 9, 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:
Disaggregation—Income Statement Expenses: Council members discussed alternative principles for consolidated expense disaggregation. Overall, Council members were supportive of the current direction of the Board in developing a flexible, high-level principle, with clear examples and the potential inclusion of a quantitative threshold. Council members suggested that the Board consider leveraging existing disaggregation principles in GAAP.
Council members generally supported the development of a high-level principle with illustrative examples to drive consistency and demonstrate the application of a high-level principle. Council members suggested that potential objectives of a high-level principle could be to (1) improve investors and other allocators of capital (collectively “investors”) capacities to predict future cash flows and performance, and (2) reflect how management operates the business. Council members generally agreed that a principle should be focused on the needs of financial statement users, but that any principle would need to be flexible so that management could exercise its judgment about what information would be meaningful to users.
Council members generally agreed that different disaggregation methods should be permitted for various expense line items including costs of goods sold, costs of services and selling, and general and administrative (SG&A) expenses to allow for flexibility given the varying nature of expense line items. Investors supported the idea of different principles applying to different income statement line items as long as comparability is maintained. For example, one investor noted that while different principles being applied to different income statement line items was not concerning, applying different principles to the same expense line item (such as SG&A) within the same industry would be concerning. However, that investor also stated that any additional disaggregation would be helpful.
Council members discussed whether quantitative thresholds should be incorporated and whether it could effectively establish uniformity in the level of disaggregation. Council members were generally supportive of a quantitative threshold but acknowledged that there may be challenges in defining the threshold and establishing how it should be calculated. Investors indicated that a prescriptive threshold would provide more granularity and ensure a reasonable level of disaggregation. Preparers were generally supportive of including a threshold but had different views on the level of specificity. Some preparers were supportive of a prescriptive quantitative threshold similar to the threshold that exists in the banking industry for non-interest expenses. Other preparers believe that a threshold should be principle-based to provide greater flexibility and operability across industries. Council members also noted that, in some cases, a threshold may not be operable and an exception should be provided for preparers in those circumstances.
2021 Agenda Consultation: The FASB staff provided an update to Council members on how the feedback received from stakeholders in the 2021 Agenda Consultation has been considered by the Board and what changes have been made to the research and technical agenda as a result of this feedback. Council members were given the opportunity to provide general observations and ask any further questions.
FASAC Meeting Recaps are provided for those interested in following the activities of the FASAC. Official positions of the FASB are reached only after extensive due process & deliberations.