September 25, 2018

The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Tuesday, September 25, 2018. The following topics were discussed:

Tax Reform and Income Tax Disclosures: FASAC members discussed whether:
  • Certain disclosures in GAAP and in the 2016 proposed Accounting Standards Update, Income Taxes (Topic 740): Disclosure Framework—Changes to the Disclosure Requirements for Income Taxes, would still be relevant, and 
  • Additional disclosures should be required in light of provisions in the Tax Cuts and Jobs Act. Specifically, provisions related to taxes on global intangible low-taxed income (GILTI), base erosion anti-abuse tax (BEAT), and foreign derived intangible income deduction. 
Investors and other users expressed: 
  • Their interest in understanding the sustainability of a company’s effective tax rate and the material drivers of the changes and risks to that rate, and 
  • Their frequent reliance on management’s estimates of its tax rate because of the difficultly in understanding and projecting complex tax strategies.
Overall, FASAC members observed that some of the current and proposed disclosure requirements surrounding undistributed foreign earnings may no longer be necessary and that additional disclosure requirements in light of provisions in the Tax Cuts and Jobs Act are unnecessary. Preparers commented that if a component of the tax rate was material, it likely was disclosed in their management’s discussion and analysis. 

SEC’s Disclosure Update and Simplification: FASAC members discussed the recent SEC request to the FASB to consider incorporating into GAAP certain disclosure requirements. Overall, FASAC members advised the FASB to undertake this effort by performing its normal pre-agenda research procedures and due process to determine:
  1. Whether specific disclosures should be incorporated into GAAP 
  2. Which organizations should be required to provide the disclosures (public companies only, all organizations, certain sized organizations, or some other combination), and 
  3. The expected costs and benefits. 
Some FASAC members indicated their preference to have the financial statement disclosure requirements in one place to promote consistency and uniformity. 

Accounting and Reporting Alternatives within GAAP: FASAC members discussed various transition and effective date alternatives within recent standards. Many FASAC members indicated that they prefer having the flexibility that transition alternatives provide, so that a company can evaluate and select the best transition alternative for their individual facts and circumstances. Many FASAC members also expressed their support for staggered effective dates and permitting early adoption because the staggering allows companies to learn from early adopters and allows investors and other users to test their models. While financial statement users did not oppose companies having flexibility in transition, many stressed that a full retrospective transition approach and comparability is preferable. Some FASAC members also urged the FASB to limit the number of alternatives to reduce potential costs involved in understanding and evaluating each permutation. 

FASAC members discussed other considerations in offering staggered effective dates and transition alternatives, including: 
  1. The costs of financial statement users to run parallel systems for the companies who have adopted and those that have not, 
  2. The costs of practitioners to train employees to understand each alternative, and 
  3. Systems implications, time and resource availability, investor and regulatory expectations, and peer behavior.
For more information on FASAC, visit the FASB website.