NEWS RELEASE 09/21/01
FASB's Emerging Issues Task Force Discusses Impact of Recent Terrorist Attacks on Businesses' Financial Reporting
Norwalk, CT, September 21, 2001—In a regularly scheduled meeting held yesterday, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) discussed the financial reporting implications of the September 11 terrorist acts. In addition to the tragic loss of thousands of lives, businesses are now faced with the challenge of providing meaningful financial information to the public reflecting changes precipitated by recent events.
With the incidents occurring so near to the close of the third quarter—and affecting a broad spectrum of companies—the accounting profession and the FASB are challenged with responding to financial reporting questions that have arisen from these events. Absent EITF guidance, many companies and their auditors would be faced with individually answering those questions in early October.
In commenting on yesterday's meeting, Tim Lucas, EITF Chairman, stated, "We all would prefer that these issues be deferred until matters much more important than accounting are dealt with, but we believe the conclusions reached by the task force yesterday will be helpful in achieving useful financial reporting guidance and will avoid the need for each reporting team to face these difficult issues on its own."
Key Issues
The EITF discussion focused on three issues, including (1) how losses or other costs caused by the incident should be reported in financial statements, (2) when those losses or costs should be recognized (on September 11 or some later date), and (3) whether other information about the economic effects of the incident should be provided in financial statements.
The task force tentatively agreed that many of the incremental losses attributable to the events of September 11 should be classified as extraordinary and agreed on guidance as to what kinds of losses should be included. For example, property damage losses and other asset impairments directly resulting from the incident would be reported as an extraordinary loss. However, insurance company losses that reflect benefits paid to policyholders would not be reported as an extraordinary loss.
The EITF also tentatively agreed that liabilities and related losses generally should not be recognized until there is an obligation to the payee, but that qualifying losses should be classified as extraordinary even if they are incurred in subsequent periods. The task force also tentatively agreed on some specific information about losses incurred that should be included in footnote disclosures.
A draft of the tentative conclusions reached on those issues will be posted on the FASB's website (www.fasb.org) on Wednesday, September 26, 2001. Task force members will review the draft conclusions with the objective of finalizing that guidance in a meeting to be held on Friday, September 28, 2001, at 1:00 p.m. (EST).
About the Emerging Issues Task Force (EITF)
The EITF was formed in 1984 in response to recommendations of the FASB's task force on timely financial reporting guidance and an FASB Invitation to Comment on those recommendations. EITF members are drawn primarily from public accounting firms, but also include representatives of large companies. The Chief Accountant of the Securities and Exchange Commission regularly attends EITF meetings as an observer. Composition of the EITF is designed to include persons in a position to be aware of emerging issues before they become widespread and before divergent practices regarding them become entrenched.
If the group can reach consensus on an issue, that consensus becomes part of generally accepted accounting principles (GAAP). A consensus is defined as an agreement reached by at least 11 of the 13 task force members.
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. Additional information about the FASB is available at this website.
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