November 10, 2020
The Investor Advisory Committee (IAC) met on November 10, 2020. At the meeting, the FASB staff delivered updates, discussed a recent investor letter received, and IAC members provided input on the following FASB topics:
- Supplier Finance Programs: IAC members discussed the Board’s current project on supplier finance programs. Some members were supportive of the project scope of improving disclosures in this area; however, others recommended that the Board consider balance sheet and cash flow presentation in addition to developing disclosure requirements. One IAC member explained that many user groups, including credit rating agencies, view trade payables related to supplier finance programs similar to debt. Accordingly, the IAC member suggested that trade payables related to supplier finance programs be presented separately on the face of the balance sheet and in the financing section of the statement of cash flows.
- Disclosures by Business Entities about Government Assistance: IAC members expressed support for the Board’s project to improve disclosures relating to government assistance. One IAC member suggested that the Board scope the project broadly to include items such as tax concessions, tax incentives, below market government grants, and below market interest rates that directly benefit the company. The member explained that more information about this assistance would be beneficial for investors in determining the extent and sustainability of the government assistance provided.
- IAC Emerging Issues and Trends: IAC members discussed how the effects of the COVID-19 pandemic have resulted in a greater demand for sensitivity analyses, which would allow them to better understand what could cause changes in margins and cost structures. One IAC member noted that there has been greater investor attention devoted recently to environmental, social, and governance information. Another IAC member recommended amendments to the statement of cash flows for financial institutions. One IAC member recommended that the Board may want to revisit the current guidance on inflation to better capture the effects of inflation in the financial statements, specifically on the income statement, because investors have devoted more attention in this area because of the possibility of inflation domestically in the United States.
- Alternative Data and Financial Statement Information: IAC members discussed how the Board should approach alternative data from third parties. One IAC member noted that views on the use of alternative data differ among committee members. Some members recommended that alternative data be incorporated by the Board, explaining that alternative data can provide useful information for investors and there is a lack of structure around it now. Other members explained that alternative data is more relevant for forecasting and less so for presenting historical data, which accounting guidance focuses on.
- Jurisdictional Information (Income Tax Disclosures): IAC members explained that there is a need for more granular information, such as profits and income taxes on a geographical or jurisdictional level. Members explained that income taxes have been an area of change recently and could also be in the future, which represents both risks and opportunities for many companies that are not adequately disclosed in the financial statements.
- Accounting for Intangible Assets: IAC members discussed the adequacy and inconsistency of the guidance on research and development (R&D) costs. One IAC member recommended that the Board should consider a new model and could consider a capitalization model similar to that in IFRS Standards. The member explained that the current treatment of R&D costs as expenses does not reflect the value that is being created by those activities. The member noted that there was diversity among committee members and some would support no change to the current guidance. IAC members also discussed the accounting for other intangible assets (such as brands or logos). One IAC member explained that there was not broad consensus among members that additional intangible assets should be recognized on the balance sheet. The member instead emphasized the importance of disclosures around intangible assets to give investors greater insight into the cost structure of a business. The IAC member stated that investors would benefit from a detailed rollforward of intangible asset accounts, similar to the disclosure requirements in IFRS Standards. The member also suggested that the Board increase disclosure around the amortization of intangible assets by income statement category (for example, costs of goods sold versus other expense line items).
Investor Advisory Committee Meeting Recaps are provided for those interested in following the activities of the Investor Advisory Committee. More details on the Investor Advisory Committee’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.