December 13, 2018

The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Thursday, December 13, 2018. The following topics were discussed:

Technology Case Study: FASAC members discussed the impact of emerging technologies on the financial reporting process. The focus of the discussion was to consider examples (including those in financial services companies) where technology has resulted in changes in processes and had financial implications within companies.

FASAC members:

  • Explained how emerging technology has helped to create process efficiencies
  • Discussed the timeframes and complexities with legacy systems, and
  • Emphasized the importance of managing high-quality data and controls over the data.

Investors and other users expressed interest in understanding whether advances in technology would change the level of granularity, format, or timing of the data provided. Overall, FASAC members agreed that it was important for the Board to continue to engage in understanding the costs and benefits relating to the changes in technology and the importance of data in the financial reporting system.

Distinguishing Liabilities and Equity (Including Convertible Debt): FASAC members provided feedback on the Board’s project. Specifically, the discussion focused around two sections of the project: (a) the disclosure and earnings-per-share (EPS) treatment of convertible instruments and (b) the derivatives scope exception.
FASAC members expressed support for simplification of convertible instruments guidance, particularly given that the companies most likely to issue convertible instruments have fewer accounting resources. Users acknowledged that the complexity of convertible instruments makes the related accounting difficult to understand. Users asked for disclosures about whether the instrument would be settled in cash or shares and generally supported the Board’s decision to use the “if-converted” EPS method for all convertible instruments. FASB staff presented various paths forward to simplify the derivatives scope exception-and FASAC members provided their views and suggestions on those paths. FASAC members also expressed support for modifying the settlement guidance.
Relative Benefits and Costs of Disclosures in GAAP: FASAC members discussed the relative costs and benefits of disclosures in GAAP. Overall, FASAC members indicated that:

  • Some of the costliest disclosures were not always the most useful to investors and other users, and
  • Disclosures that are relevant to investors and other users may (a) change over time as economics change and (b) be dependent on the type of user.

FASAC members involved in the preparation of financial statements explained that disclosures are most costly when they involve:

  • The use of third-party experts or high levels of management judgment, or
  • Information that is not prepared for management or is developed manually outside of a company’s systems. 

Investors and other users explained that disclosures are most useful when they:

  • Provide information about liquidity and risk for developing models and forecasts,
  • Increase comparability of financial information across companies, or
  • Provide information that is useful for specific types of companies or industries. 

Overall FASAC members supported continued research on this topic and supported the Board’s interest in understanding the costs and benefits of disclosures widely in GAAP.
For more information on FASAC, visit the FASB website.