September 30, 2021
The Financial Accounting Standards Advisory Council (FASAC) held its quarterly meeting on Thursday, September 30, 2021. The FASB Chair provided highlights on FASB activities that were not otherwise on the agenda for the Council meeting and SEC and PCAOB staff members commented on current issues and activities. Council members discussed the following topics:
FASB’s Investor Outreach Process: Council members discussed the FASB’s investor outreach process and provided observations and suggestions about how the FASB can make engagement with investors and other financial statement users more accessible and enhance educational efforts.
Overall, Council members commended the FASB on their outreach efforts with investors and other financial statement users, including the transparency of the outreach process included in the Investor Outreach Report. Investors and other financial statement users encouraged the FASB to continue to be proactive in educational efforts relating to implementation of new standards to help users understand the potential financial impact to a company and how that may inform their decision-making process.
Council members offered suggestions to make investor outreach more accessible and to encourage user engagement including (a) focusing on specific, rather than general, areas of financial reporting; (b) providing concise, bulleted communication, rather than longer narratives; and (c) communicating expectations to investors and other financial statement users that a detailed understanding of accounting guidance is unnecessary to participate in the standard-setting process.
Council members provided suggestions about different mechanisms to engage with additional investor and other financial statement user groups and noted that industry specific Post-Implementation Review (PIR) feedback sessions, on-demand videos, and podcasts are helpful resources.
Some preparers suggested the FASB increase the transparency about the feedback received from various types of financial statement users and how the Board considers and weighs differing views among investors and other financial statement users in their decision-making process.
Financial Performance Reporting—Disaggregation of Performance Information (Part 1): Council members discussed the history and background of the financial performance reporting project and provided initial feedback about income statement disaggregation.
Investors and other financial statement users expressed continued support for the project and emphasized the need for greater granularity of information on the income statement. They explained that additional disaggregation of performance information could improve a financial statement user’s understanding of key business drivers and input costs. Investors also stressed that disaggregation would enable them to calculate their own key performance indicators and noted that disaggregated expense information that indicates whether certain costs are fixed or variable would be useful. Some investors and other financial statement users stated that they would be willing to sacrifice some detail on disaggregation to maintain consistency and comparability among companies.
Given the inherent differences amongst companies and industries, some Council members commented that a broad framework for disaggregation could provide preparers with flexibility to provide decision-useful information to investors, as compared to a rules-based approach. A few preparers questioned whether further disaggregation is needed, citing a lack of inquiries from investors on the topic for their specific entities. Some preparers noted concern that further disaggregation of selling, general, and administrative expenses and other cost drivers could lead to competitive harm. Preparers also expressed concern that certain forms of disaggregation would be costly and may not provide useful information to users. For example, preparers noted that certain resources that are shared across different functions within an entity have to be allocated and they questioned if investors would find the information that results from these allocations useful.
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. More details on the FASAC’s input on the FASB’s projects can be found within the meeting minutes, which will be published on the FASB website in the coming weeks.