NEWS RELEASE 01/14/02
FASB Focuses on Three New Projects—Revenue and Liability Recognition, Disclosure About Intangible Assets, and Codification and Simplification of Accounting Literature
Norwalk, CT, January 14, 2002—At its January 9 Board meeting, the FASB supported three new projects that cover timely issues. First, the FASB approved issuance of a proposal for a project on revenue and liability recognition. The Board added to its technical agenda a second project on disclosure about intangible assets, as proposed in August 2001. A third project addressing concerns raised by constituents about the need to codify and simplify existing accounting literature also received Board approval.
Revenue and Liability Recognition
In response to questions about revenue recognition that increasingly are being raised, the FASB agreed to propose undertaking a new agenda project to address those issues. The comment period on the proposal will be 60 days.
The FASB's Emerging Issues Task Force (EITF) has devoted a significant amount of time to address such issues and has faced challenges resolving them. Examples of those issues include revenue arrangements involving multiple products or services and the effect on revenue recognition of customer rights of return. Additionally, revenue recognition is the largest single category of fraudulent financial reporting and financial statement restatements. The proposed project would address such matters by developing an accounting standard on revenue recognition generally.
The existing conceptual guidance on which that new standard would be based is flawed in certain respects. Specifically, the conceptual guidance for revenue recognition is inconsistent internally and with that for recognizing liabilities, and has proven not to be operational. Accordingly, the project would revise that guidance by amending certain of the Board's Concepts Statements to provide a sound basis for developing the standard on revenue recognition. The proposal will be posted later this month to the FASB website, www.fasb.org.
Disclosure about Intangibles
The project on disclosure of information about intangible assets will establish standards for improving disclosure of information about intangible assets that are not currently reported in financial statements. Examples include brand names, customer lists, licensing agreements and patented technology.
The proposed scope of the project focuses on disclosure about intangible assets that are not recognized in statements of financial position but that would have been recognized if acquired either separately or in a business combination under FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. That scope includes acquired in-process research and development assets.
During the project, the FASB will determine what type of information about intangible assets would be required for disclosure. Disclosures may include quantitative information about fair values of intangible assets or costs incurred in generating them, as well as qualitative information. The FASB expects to gather additional input on this project from a planned working group and other constituents while working on an Exposure Draft.
Codification and Simplification Projects
The FASB agreed to launch a series of administrative projects aimed at codifying and simplifying the U.S. accounting literature. This overall project is being initiated in response to concerns raised by constituents about the quantity, complexity and lack of easy retrievability of the body of U.S. accounting literature, including guidance issued by the EITF, the American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC). A key objective of this project is to improve the usability and effectiveness of that literature.
As part of this project, the FASB plans to include references to all applicable U.S. accounting literature in its future standards and in the FASB’s Current Text, a compilation of all FASB accounting standards categorized by subject. In addition, the FASB hopes to partner with others in developing an online database that will include all of the U.S. accounting literature.
Another aspect of the project is for the FASB to work with the EITF, the AICPA and the SEC to more clearly define their roles in setting accounting standards with an eye toward streamlining certain activities.
In an effort to reduce the complexity of accounting literature, the FASB will seek to determine if it can issue standards that are less detailed and have few, if any, exceptions or alternatives. In support of this effort to reduce complexity, the FASB will actively engage its constituents in discussions about the cost-benefit relationship of proposed standards.
In addition, to reduce what has been referred to as "standards overload," the FASB will work with the SEC on its initiative to modernize financial reporting and disclosure.
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely heavily on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at www.fasb.org.
The Financial Accounting Standards Board
Serving the investing public through transparent information, resulting from high-quality financial reporting standards, developed in an independent, private sector, open due process.