Invitation to Comment: Agenda Consultation

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This document represents the view of the FASB staff. The views herein do not necessarily reflect the views of the FASB. Official positions of the FASB are determined only after extensive due process and deliberation.

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Background

 
In December 2020, Financial Accounting Standards Board (FASB) Chair Richard R. Jones announced at the American Institute of Certified Public Accountants (AICPA) Conference on U.S. Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) Developments (2020 AICPA Conference) that the FASB would undertake an agenda consultation process in 2021 (the 2021 Agenda Consultation) to assist the Board in deciding where to focus its standard-setting efforts going forward.
 
On June 24, 2021, the FASB staff published an Invitation to Comment (ITC) to solicit broad stakeholder feedback about the future standard-setting agenda of the FASB. The feedback on the ITC is essential in ensuring that the FASB continues to allocate its finite resources to achievable standard-setting projects that fulfill its primary mission of improving financial accounting and reporting standards and addressing topics that are of the highest priority to its stakeholders.
 
The FASB staff is issuing the ITC to obtain broad stakeholder feedback. The ITC does not include Board views; the Board will consider the feedback received in response to the ITC when making decisions about potential changes to its agenda. Those decisions include which topics, if any, should be added to the FASB’s agenda (and in what order) and whether the current agenda projects remain a priority to stakeholders or could be reimagined.
 
The ITC and agenda consultation process are intended to complement, not replace, the FASB’s formal agenda request process; stakeholders are encouraged to continue to submit agenda requests about needed improvements to generally accepted accounting principles (GAAP) as they arise.
 

How did the FASB staff develop the ITC?

 

FASB staff and Board members met with over 200 stakeholders, approximately one third of which were investors or other financial statement users.

To begin the 2021 agenda consultation process, the staff sought input from numerous stakeholder groups and FASB advisory groups, including the Investor Advisory Committee (IAC), the Financial Accounting Standards Advisory Council (FASAC), Emerging Issues Task Force (EITF), the Not-for-Profit Advisory Committee (NAC), the Private Company Council (PCC), and the Small Business Advisory Committee (SBAC). These stakeholders were asked to identify priority areas of improvement to financial reporting. This initial outreach included a cross-section of stakeholders, including investors, preparers, practitioners, and academics—from public companies, private companies, and not-for-profit entities (NFPs).

FASB staff and Board members met with over 200 stakeholders, approximately one third of which were investors or other financial statement users throughout the first half of 2021. During these outreach meetings, stakeholders identified over 40 topics of potential improvement for the FASB to consider as part of its standard-setting efforts.
 
Their initial feedback was diverse, thoughtful, and insightful. The discussions included within the ITC are based on input received from these stakeholders on the Board’s future standard-setting activities, which generally fell within one of the following types of projects:

1. Greater disaggregation and granularity of financial reporting information are needed, either on the face of the financial statements or the notes to financial statements, to provide investors with better, more useful information that will directly influence their decisions and behaviors (Chapter 1—Disaggregation of Financial Reporting Information).
2. Emerging transactions need to be considered, such as in cases where there is no specific topical authoritative accounting or disclosure guidance or in cases where the current accounting outcomes are not intuitive, to reduce diversity in practice, and to retain the relevancy of the Codification (Chapter 2—Emerging Areas in Financial Reporting).
3. Specific areas of existing GAAP need to be reevaluated to reduce unnecessary cost and complexity (Chapter 3—Reduction of Unnecessary Complexity in Current GAAP).
4. Enhancements to, and education on, certain FASB standard-setting processes would help to increase transparency (Chapter 4—Improvement to FASB Processes). 

Although the ITC is primarily about topics that the FASB should consider adding to its agenda, the stakeholder feedback from the first half of 2021 emphasized the importance of the FASB continuing to allocate resources to address a wide range of stakeholder concerns, which include:

1. Completing critical projects currently on the agenda that are designed to reduce diversity in practice, improve financial reporting information for investors, and address other practice issues (for example, segment reporting, the subsequent accounting for goodwill, disclosures about supply-chain financing, and the accounting for asset acquisitions and business combinations)
2. Addressing time-sensitive stakeholder concerns in a timely manner as they arise and are brought to the FASB’s attention through agenda requests (such as the FASB’s recent standard-setting activities in response to the COVID-19 pandemic and reference rate reform)
3. Monitoring implementation of the recently completed major projects, addressing related practice issues in a timely manner, and educating stakeholders about the new guidance (for example, the post-implementation reviews on revenue from contracts with customers, current expected credit losses, and leases). 

What information is the FASB seeking from stakeholders?

 
All stakeholders are invited to provide feedback on all matters in the ITC. The FASB staff welcomes comments from those who are interested only in a specific topic or topics described in the ITC. Comments are most helpful if they are as specific as possible, identify and clearly explain the topic or question to which they relate, and are specific to financial accounting and reporting. The ITC includes both general questions about the future of the FASB’s technical agenda and directed questions on specific topics.
 

What is the FASB’s agenda prioritization process?

 
As of the issuance of the ITC, the FASB’s technical agenda includes 25 standard-setting projects, 6 research projects, 3 post-implementation review projects, and a project on updates to the FASB’s nonauthoritative Conceptual Framework. The objective, timing, and next steps related to each standard-setting project are included on the FASB website. Some include broader changes to GAAP, while others are narrower in scope. Some projects focus on improving recognition and measurement in the financial statements and others focus on improving the required disclosures in the notes to the financial statements. The post-implementation review process is an evaluation of whether a standard is achieving its objective by providing financial statement users with relevant information in ways that justify the costs of providing it. Ultimately, all the projects relate to the mission of the FASB, which is:
 
To establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.
 
At least a majority of the Board must approve any projects that are added to or removed from the technical agenda. The Board evaluates potential projects against the following three criteria to ensure consistent agenda prioritization decisions:

1. There is an identifiable and sufficiently pervasive need to improve GAAP—What improvement is needed? To what extent does an issue affect users, preparers, auditors, and others?
2. There are technically feasible solutions and the perceived benefits of those solutions are likely to justify the expected costs of change—What are the various alternative ways that an issue could be addressed? What are the expected benefits of the solutions, and can the solutions be implemented?
3. The issue has an identifiable scope—Can the FASB effectively identify the scope of the potential project? Can the issue be sufficiently described? 

Decisions about whether a project meets those criteria is a matter of judgment by the Board, which is based on research and analysis performed by the FASB staff, as well as the diverse experiences of the Board members. When considering the Board’s first agenda criteria (that is, whether there is an identifiable and sufficiently pervasive need to improve GAAP), there are three primary reasons for change:

1. To provide investors with better, more useful information that will directly influence their decisions and behavior—The FASB’s mission centers on standards that provide investors with decision-useful information and the FASB is very focused on obtaining investor input at every stage of the standard-setting process, including agenda decisions. However, an investor’s desire for more granular information must be balanced with the cost to provide that information. An emphasis on cost-benefit analysis throughout the FASB’s standard-setting activities is crucial. The FASB should clearly identify, understand, and communicate the types of investors that will benefit from any changes and how they will use that information.
2. To remove unnecessary cost and complexity from the system—If a transaction is, by its nature, complex, the accounting also may be complex, which is necessary complexity. Conversely, unnecessary complexity and the cost that accompanies it should be minimized because it affects investors and preparers. Unnecessary complexity conveys a level of precision that can be misleading and can reduce the quality of compliance with a standard.
3. To maintain and improve the FASB Accounting Standards Codification®—Ensuring that the Codification (which is the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities) remains relevant to current transactions, addresses practice issues, and narrows unacceptable diversity in practice continues to be important. 

How can I provide feedback on the ITC?

 
Stakeholders are encouraged to submit comments on any aspect of the ITC by September 22, 2021, using one of the following methods:

• Submitting comments through the electronic feedback form
• Emailing comments to director@fasb.org, File Reference No. 2021-004
• Sending a letter to “Technical Director, File Reference No. 2021-004, FASB, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116.”