June 23, 2020
The Financial Accounting Standards Advisory Council (FASAC) held its quarterly meeting on Tuesday, June 23, 2020. The meeting was abbreviated and held via video conference because of the COVID-19 pandemic. The following topics were discussed:
FAF/FASB Post-Implementation Review (PIR): FASAC members provided feedback on the FASB’s PIR process, which was approved by the FAF Board of Trustees at its May 2020 meeting.
FASAC members generally supported the PIR process change and indicated that responding to evolving issues in a timely manner should be a priority. Council members commended the FASB’s outreach efforts to engage all stakeholder groups in its PIR of recent major standards including revenue recognition, leases, and credit losses. Several Council members suggested that the Board consider future incorporation of smaller projects into the PIR process in a streamlined, accelerated, and cost-effective manner.
Accounting Standards and Financial Statements in the Current Environment: FASAC members discussed various topics that are important in the current environment.
Government Assistance: FASAC members acknowledged that the lack of GAAP guidance for government assistance may lead to diversity in the accounting and in financial statement disclosures. However, Council members indicated that companies generally are familiar with existing accounting models that could be applied to various government assistance arrangements and that there is not an urgent need for additional guidance. The consensus among Council members is that if the FASB were to issue guidance on government assistance at this time, it would likely result in additional costs and complexity, given the wide variety in the forms of government assistance provided to companies. However, some Council members indicated that the Board should consider a project on recognition and measurement of government assistance in the future.
Risks and Uncertainties: Council members indicated that disclosures about risks and uncertainties could be adequately addressed in MD&A for public companies; private companies may require additional guidance. Council members also recognized that the uncertainty that exists in the current environment makes it difficult for companies to identify and predict current or future business risk factors.
Going Concern: Some Council members stated that disclosure about liquidity, debt covenant violations, and defaults could serve as indicators to help investors and other financial statement users identify entities that may be unable to continue in the future as a going concern.
Impairment: Investors and other financial statement users indicated that information about intangible asset impairment may be less useful than information about tangible assets, given the future cash-flow generating nature of those assets. Council members also noted it can be difficult for investors and other users to analyze companies without knowing the specific assumptions the entity used when calculating its impairments.
Current Expected Credit Losses (CECL) and Macroeconomic Estimates: FASAC members observed that it is too early in the process to fully assess the outcome of the CECL implementation. However, several investors and other financial statement users commented that it is helpful when companies disclose their forward outlook for inputs, such as GDP growth and unemployment. That information helps financial statement users understand and interpret the entity’s CECL estimates.
Loan and Lease Modification including Troubled Debt Restructuring (TDRs): Some Council members suggested that it could be useful to highlight loans that have been modified multiple times or are considered to be “serial modifiers.” Council members indicated that more lease modifications are likely to occur in the second half of 2020 as landlords better understand the financial impact of the pandemic.
Several Council members questioned whether there is an ongoing need for a separate accounting model for TDRs. Those members suggested that information about TDRs could be provided in other forms, such as loss curves, vintage disclosures, or through the application of the CECL standard.
The FASB Chairman provided highlights on FASB activities that were not otherwise on the agenda and SEC and PCAOB senior staff commented on current issues and activities.
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.