Remarks of FASB Member Susan M. Cosper at the PCC Town(6-11-19)

Remarks of FASB Member Susan M. Cosper
PCC Town Hall
Las Vegas, Nevada
June 11, 2019

Welcome to the Private Company Council Town Hall. Today’s event is one of several Town Halls hosted by the FASB and the Private Company Council—or PCC—at locations around the country. They give us the chance to share information about new accounting standards, answer your questions, and hear your views.

This will be my first Town Hall as a member of the FASB. Before I joined the Board last month, I spent eight years as the FASB’s technical director.  My time in that role coincided—give or take a year—with the formation of the PCC.

As technical director, I got to know and work closely with PCC members—past and present—as well as its predecessor organization, the Private Company Financial Reporting Committee. Some of those PCC members are in this room today, including current PCC Chair Candy Wright.

It’s never easy to get a new group off the ground. Especially one tasked to make accounting standards more understandable—for private companies or anyone else, for that matter.

But PCC members did it. They built a culture that transcends any individual member. A culture committed to high-quality financial reporting. A culture based on collaboration among members and with the Board.

So when I was offered the role of PCC liaison for the FASB, I was honored to accept it. I welcomed the opportunity serve you in this capacity.

For me, it feels like a homecoming. Growing up in a household with a family business, I saw firsthand the amount of hard work and perseverance it takes to make a small business successful— especially when resources are limited.  It instilled in me an appreciation for problem solving and numbers, which sparked my interest in accounting.

My first job out of college—other than working for my Dad—was with an accounting firm in Pittsburgh. My clients included small and privately owned companies, community banks, not-for-profits, and small and large public companies.  The experience required me to see accounting issues through different perspectives—and taught me the importance of being able to serve all stakeholders, not just some.

It’s a lesson the PCC helped impart to the Board—one that fueled the FASB’s own “cultural evolution.”

Before the PCC, the FASB operated on the premise that stakeholders were the same. And a solution, for the most part, was a “one size fits all.”

We all know this is not the case.  But our prior reluctance to accept differences made us resist alternatives that would improve financial reporting for those who use private company financial statements.

In the FASB’s defense, our objective was—and still is—to develop the most comparable standards possible—across industries, organizations, and even nations.

But in reality, differences do exist. And to develop the best standards possible for all of our stakeholders, we had to come to terms with the fact that, for some of our stakeholders, the solution may be in search of a problem that does not exist.  We also learned from the PCC that reducing cost and complexity, and promoting simplification, is a “win”—not just for private company stakeholders, but for all of our stakeholders.

This morning, I’ll talk about how the PCC helped us do that. I’ll also talk about how our work together continues to improve accounting standards for all stakeholders, not just some. And where you fit into that.

But first, let me pause to remind you that official positions of the FASB are reached only after extensive due process and deliberations. In other words, what I am about to say are my views and only my views.

As a Board, our priority is to improve the relevance of information to investors and other users. We make standard-setting decisions within that context.

We generally support the consideration of differences for private companies in the following areas:
  • One, for recognition and measurement—when the information is not relevant
  • Two, for disclosures—when considering the cost to provide the information balanced with the relevance of that information for a user, and
  • Three, when private companies simply just need more time.
On the flip side—as I’m sure you understand—we can’t support differences that compromise information that investors or other financial statement users consider relevant.

If it sounds like a balancing act, it is.

That’s where the PCC helps us understand when accounting should be the same for private companies, and when it should be different. A good example is our approach to the leases standard, which illustrates a shift in how we think about accounting alternatives.

During our project outreach, stakeholders told us that leases should be recognized on the balance sheet. The Board agreed, and that’s why the standard requires all organizations to include lease obligations on the balance sheet.

However, the PCC and other private company stakeholders voiced concerns about the impact that additional liabilities would have on debt covenants and on accounting judgments—particularly among smaller companies that have debt covenants based principally on a prescribed debt-to-tangible net worth ratio.

The FASB listened. The Board observed that operating lease liabilities are not “debt like” and should be characterized as operating obligations in the financial statements. The Board also provided an extended effective date so that covenants would naturally be revised in the normal course given the natural evolution of those arrangements.

It seems obvious that simple is usually better, but the FASB has not always chosen that path. Sometimes we make accounting too hard, even for seasoned experts.

The PCC alerts us to areas of GAAP that may be unnecessarily complex for all stakeholders, not just private companies.

For example: PCC members and other private company stakeholders shared concerns about the cost and complexity of the goodwill impairment test. Furthermore, users of private company financial statements told us they often disregard goodwill and goodwill impairment losses when analyzing a private company’s financial condition and operating performance.

Based on this input, the FASB issued an alternative that allows private companies to amortize goodwill and apply a simplified goodwill impairment model.

But private companies weren’t the only ones who questioned the relative usefulness of the existing goodwill impairment model. In fact, their feedback was consistent with what we’d heard from not-for-profit organizations and some public companies.

So the FASB looked at ways to extend the private company alternative to a broader audience.

The result? Last month, the FASB issued a new standard that extends the PCC alternative for goodwill and for measuring certain identifiable intangible assets to not-for-profit organizations. In the coming weeks, we’ll also issue an Invitation to Comment on a broad project on the subsequent accounting for goodwill and the accounting for certain identifiable intangible assets directed primarily to public business entities.

In another project, we simplified guidance for share-based payments. Based on our work with the PCC, the FASB issued several targeted amendments that makes it easier for all organizations to account for forfeitures and tax withholdings, among other improvements. To further reduce costs for private companies, we allowed them an expedient to determine the expected term of an option and another opportunity to elect using intrinsic value to measure a liability-classified award.

Speaking of share-based payments…last year, the FASB issued a standard that makes it easier for companies to account for the share-based payments they provide to service providers, suppliers, and other people that are not employees. PCC input helped make that happen.

With the help of the PCC, we continue to tackle projects to improve standards for all stakeholders.  We will be discussing the PCC’s existing project on share-based compensation during our Town Hall today.

Our active agenda project on liabilities and equity will simplify a very complex area of accounting—and provide more relevant information to financial statement users. Again, we turn to the PCC to help us cut through the “noise” to get to the information that’s most relevant.

At a meeting last April, the PCC generally supported a reduction in the number of models for convertible debt among some of the other targeted improvements we will be proposing. We’ll incorporate this input in an Exposure Draft scheduled to be issued later this summer.

PCC perspectives also inform our work to simplify balance sheet classification of debt. At a recent PCC meeting, members continued to support the view that unused lines of credit should not be considered in determining debt classification. Currently, the staff is working on a revised Exposure Draft to be issued later this year—one that will reflect this feedback.

In the spirit of serving all stakeholders—and inspired by our work with the PCC—the FASB will revisit our philosophy on how we set effective dates for all standards. At a public meeting next month, the FASB will consider whether longer implementation timelines should also be extended for private companies and not-for-profit organizations as well as for smaller public companies—and if so, how we should define a “small public company.” At the same time, to the extent we change that philosophy, we will look at the effective dates of certain currently issued ASUs, not yet effective, to determine whether they should be amended to reflect a new philosophy.   We will be discussing this philosophy with the PCC later this month.

Serving all our stakeholders is an ongoing process—one that doesn’t end when a final standard has been issued.  But even the best standard in the world will fall short if stakeholders can’t understand or apply it in practice.

The PCC is helping us in this area, too. Every PCC meeting includes discussion about private company implementation issues. These dialogues between Board and Council members help us develop and refine educational resources that address your specific needs and concerns on revenue recognition, leases, credit losses, and all new standards.

We’ve also been more proactive in developing educational resources to help all preparers and practitioners implement our standards.  They include plain-language documents, educational videos, CPE webcasts, transition resource groups, and the FASB implementation web portal—a “one-stop shop” for the information to help you implement standards.

These resources have been well received. But because “one size does not fit all,” we make it a point to customize resources to meet different stakeholder needs.

For example, to support private company transition to the revenue recognition standard, the FASB staff developed various resources specifically targeted to private companies.  They include videos, Q and A documents, and staff papers that focus on certain private company-specific issues developed in conjunction with the PCC and the Technical Issues Committee of the AICPA.

Last December, we also hosted a CPE webinar to specifically address private company implementation questions. To date, more than 1,100 viewers tuned in to the live event or have watched the archived version on our website.

We also know that small firms and private companies often turn to third-party CPE providers to provide supplemental training on our standards. And we knew we needed to do a better job of engaging with the organizations that provide their continuing education.

That’s why we created the FASB CPE provider forums several years ago. This series of web-based forums is tailored to stand-alone providers and individuals who offer CPE within their organizations or directly to clients.

We also are working on resources to help small institutions implement the current expected credit losses standard, better known as “CECL.” This summer, we’ll issue a Q and A document to assist community banks, credit unions, and other smaller companies in understanding how to develop the estimate that includes a reasonable and supportable forecast.  Also on tap is a series of “Road Shows” and educational webinars to address implementation questions. Stay tuned for more information.

And we’re not just focused on implementation support.  We’ve improved communication around just about everything we do.  In addition to these Town Halls, we recently redesigned our PCC web page to make it easier to find PCC meeting minutes and recaps and other resources of interest to private companies. 

You may be interested to know we recently started posting video recaps of PCC meetings starring Candy Wright.  You’ll find those through the PCC web portal, too. I urge you to check it out.

Whether you realize it or not, you helped the FASB make financial reporting better.  As private company preparers and practitioners, you told us our standards sometimes failed to provide relevant information. You told us when standards were too complex. And you told us you needed more support to successfully implement our standards.

We listened and we learned. Thanks to you, we improved how we engage with all stakeholders—including not-for-profit organizations and employee benefit plans. We launched a simplification initiative to bring more clarity to financial reporting for public and private companies. And we developed more educational resources to support your implementation efforts.

And both the FASB and the PCC continue to learn from you.

Be proud of what we have accomplished and keep working with us. Continue to follow our activities, share your views, and attend our Town Halls and other presentations.

Stay in touch with us through our website and other social media channels.  Connect.

In the end, our ability to develop standards that work for all stakeholders—now and in the future—depends on your continued participation in our process.

Thank you.

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