September 24, 2019

The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Tuesday, September 24, 2019. The following topics were discussed:

Financial Performance Reporting—Disaggregation of Performance Information: FASAC members provided feedback on the Board’s project. The discussion focused on disaggregation of cost of revenue and selling, general, and administrative expenses by nature and function using an internal view approach.

FASAC members expressed diverse views on the internal view approach to disaggregation, which could provide additional insight into how management evaluates its business. Preparers and practitioners expressed concern about the operationality of an internal view approach and indicated that disaggregation could result in competitive harm. Investors and other users indicated that, while comparability is important when analyzing a company’s financial statements, comparability related to disaggregated expenses may be unachievable due to the wide variety of industries and management views. Some investors and other users questioned whether additional information would provide a significant benefit when compared to current information provided within management’s discussion and analysis about expense drivers.

Reference Rate Reform: Facilitation of the Effects of the Interbank Offered Rate Transition on Financial Reporting: FASAC members discussed the FASB’s recent proposed Update, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and provided feedback on three main areas including:
  • Readiness and transition progress
  • Proposed accounting relief
  • Potential qualitative and quantitative disclosures.
Overall, FASAC members were very supportive of the proposed accounting relief. In terms of readiness, many companies are early in their transition process and have not begun to consider the potential impacts and risks that reference rate reform may have on a company’s financial results. FASAC members from some industries, such as financial services, and larger companies generally were further along in their assessments and education about the transition when compared to other companies; some smaller companies anticipated that they would be unaffected, given the rate structures in their contracts. FASAC members acknowledged the temporary nature of the relief and supported the Board’s commitment to monitor and consider any future adjustments needed to the sunset provision relating to the proposed relief.
FASAC members generally disagreed that the FASB should add new disclosures related to reference rate reform. Preparers and practitioners indicated concern about the operationality and costs that could be involved and raised questions about what information could be provided. Some investors and other users indicated that additional disclosures could provide useful information in certain industries or companies where the impact was significant. Other investors and other users indicated that current MD&A disclosures relating to risks and uncertainties could provide sufficient information about risks related to the transition and additional disclosure may be unnecessary.
Implementation of Revenue Recognition: Assessing Benefits and Ongoing Costs: FASAC members participated in the second of a series of discussions on the FASB’s post-effective date assessment of ongoing costs and benefits of the revenue recognition standard. FASAC members indicated that the costs have declined significantly since initial implementation and that the ongoing costs are generally in line with expectations. Some benefits of applying the revenue recognition standard noted by preparers include (a) better cross-functional communication between those involved in contract negotiations and those involved in financing and accounting for the revenue generated from those contracts and (b) more robust conversations with investors. Investors and other users indicated their support for the consistency of the requirements for all entities on a global basis; they commented that the additional disclosures provided enough information to ask probing questions.
FASAC members also identified best practices from the implementation process of the revenue recognition standard, including the Transition Resource Group (TRG), respective industry groups (including the industry groups formed by the AICPA), and ongoing engagement with the FASB staff.