May 24, 2022
The Investor Advisory Committee (IAC) met on May 24, 2022. At the meeting, the FASB staff delivered updates and IAC members provided input on the following topics:
- Targeted Improvements to Income Tax Disclosures: IAC members provided feedback on two areas of potential improvements to income tax disclosures—income taxes paid and tax rate reconciliation. Overall, the committee agreed that it would be helpful to have more information on cash taxes paid by geography, more reconciling items in the effective tax rate reconciliation table, and more consistent disclosures around items that drive the effective tax rate. IAC members supported disaggregation by country and discussed whether disaggregation by state would be as useful. In addition, IAC members expressed interest in receiving additional information about pretax earnings, income tax expense, and income taxes paid broken down by country and potentially by state.
- Emerging Issues and Trends: IAC members discussed diluted earnings-per-share (EPS) issues related to potential shares, such as stock options. One IAC member noted that companies with net losses are not required to include potential shares in their EPS calculations because doing so would reduce the loss on a per-share basis, which would be antidilutive. This IAC member observed that not all companies disclose the potential shares that are not included in the computation of dilutive EPS. Therefore, particular attention should be paid to the analysis of dilutive share information for early-stage companies and companies with net losses.
- Accounting for and Disclosure of Digital Assets: IAC members supported addressing the accounting for digital assets to better reflect the underlying economics of those assets. The committee discussed the potential scope of the project, given there are many different types of digital assets. IAC members noted separating digital assets into fungible and nonfungible could be one way to differentiate among types of digital assets. Overall, the committee was in favor of companies providing more information on why they hold digital assets and how they value those assets.
- Segment Reporting: IAC members discussed improvements to segment expense disclosures reported by companies. The committee explained that if the chief operating decision maker (CODM) finds expenses to be material, investors would likely find that information useful. IAC members highlighted that segment reporting is very important for investors’ forecasts and models. IAC members noted that additional information on cost of goods sold (COGS); selling, general, and administrative expenses (SG&A); and research and development (R&D) at the segment level would help investors better understand the profitability and value of a company’s different businesses. In addition, IAC members were in favor of providing more segment information on a quarterly basis.
- Disaggregation—Income Statement Expenses: IAC members discussed improvements to the disaggregation of income statement expenses. The committee explained that increased disaggregation of COGS and SG&A would be helpful for investors to better understand the sustainability and sensitivity of margins across various macro environments and across companies. One IAC member noted that investors would like to see more transparency around labor costs, such as fixed versus variable expenses, but acknowledged those disclosures might pose competitive harm issues for some companies. In addition, some IAC members highlighted that disclosures on technology and research and development costs vary across companies and requested more information on those expenses. One IAC member observed that companies’ interpretations of what is considered research and development may differ, and thus, simply mandating disclosure may not be sufficient.
- Accounting for Financial Instruments with Environmental, Social, and Governance (ESG)-Linked Features: IAC members briefly discussed the accounting for ESG-linked financial instruments. The committee agreed that more disclosures should be provided around those types of instruments and was supportive of the Board taking on this project.
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.