Implementation guidance may have its relationship to U.S. GAAP defined

Businesses are undertaking some of the biggest changes to accounting in decades and many have questions — lots of them.

The Financial Accounting Standards Board (FASB) has stepped up its efforts to answer the inquiries. Two of its major standards in recent years have been accompanied by advisory panels, called Transition Resource Groups (TRGs). In the past year it launched an implementation website to give financial professionals quick access to meeting minutes, staff research papers and videos on hot topics.

The problem is, not everyone can find the answers. The board is researching ways to make its implementation guidance easier to reach and more consistent without getting into formal standard-setting, which slows down the board’s response to pressing questions, FASB members said during a Sept. 21, 2018, meeting between the FASB and the Institute of Management Accountants (IMA) Financial Reporting Committee (FRC).

“The more formal we make the process, the less likely people are to get timely answers,” FASB Vice Chairman James Kroeker said. “We’re trying to strike the balance between pragmatism and timely answers.”

FRC Chair Nancy Schroeder, a consultant at a consulting firm, said the FRC welcomed the FASB’s decision to study how to make the guidance more accessible.

“Providing guidance is good,” Schroeder said. “There’s a question of exactly the form that that takes and then how do you keep that fresh so that someone can get to it through the Codification or topically so that they know that that information is there?”

Meeting summaries, videos and technical question-and-answer documents have risen in prominence as businesses gear up to implement some of the FASB’s major new accounting standards.

But as the TRGs for the revenue and credit loss standards provided answers to implementation questions, other questions have cropped up about the appropriate role they should play. Former FASB member Lawrence Smith, who chaired the group devoted to the credit loss standard, bemoaned the rise of the summaries of discussions of these groups as “de facto GAAP,” at a speech at a conference in May. Smith’s protest was a sign of how much the board’s due process has changed in the nine years since it launched the Codification of U.S. generally accepted accounting principles (GAAP) in 2009.

The Codification superseded the previous, scattered sources of accounting standards. It brought together Accounting Research Bulletins, Accounting Principles Board Opinions, Statements of Financial Accounting Standards, FASB Staff Positions, FASB Interpretations, FASB Emerging Issues Task Force issues, American Institute of Certified Public Accountants (AICPA) Statements of Position, Securities and Exchange Commission (SEC) Staff Accounting Bulletins and other SEC rules. The Codification’s development was considered a major undertaking, and it reorganized the entire body of U.S. GAAP to create a single source for authoritative accounting guidance.

But three of the major standards the accounting board has published in the past four years have raised some unanticipated questions among financial reporting professionals, and the board’s responses to the questions have stretched the boundaries for authoritative guidance that were set when the Codification was introduced. Similarly the tax reform enacted in December 2017 has presented a host of financial reporting questions that the FASB decided with a series of staff question-and-answer papers, which are a new category of documents that fall outside the Codification.

Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers, was issued in 2014 after more than a dozen years of work with the International Accounting Standards Board (IASB) to come up with a single method for most companies to calculate the top line in their income statements. The revenue standard erased scores of pieces of business- and transaction-specific revenue rules in U.S. GAAP and offered a principles-based approach to recognizing revenue. The FASB standard is mostly converged with the IASB’s International Financial Reporting Standard (IFRS) 15, Revenue From Contracts With Customers, which was published jointly with the FASB standard. Public companies had to comply with the revenue standard in the first quarter of 2018.

The shift from rules-based accounting methods to a standard based on principles was expected to be a significant cultural shift for U.S. companies and their accountants. When the standard was published, the FASB and the IASB formed what they called a Transition Resource Group (TRG) to field questions and offer solutions.

ASU No. 2016-02, Leases (Topic 842), was published in February 2016 to require companies to report on their balance sheets for the first time the assets and liabilities for almost all leases. Because leasing equipment and real estate is such a pervasive business practice, the new standard is expected to make the asset and liabilities on balance sheets balloon. Public companies must comply with the standard in 2019.

The FASB did not form a TRG for implementation questions about the lease standard, but the board has responded to questions from some industries by publishing official updates to U.S. GAAP, such as a reporting exemption for oil-and-gas companies and utilities that will not force them to look through all of their old contracts for running wires or pipelines across land easements and rights of way to determine if they qualify as leases. The board currently is weighing a proposal that will ease the accounting requirements for lessors.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires banks and other businesses to report losses on souring loans and certain debt securities earlier in the credit cycle. The update is the FASB’s chief response to the 2008 financial crisis, and the board formed a TRG to handle questions generated by it. Publicly traded companies must comply with the standard in 2020; privately held businesses, not-for-profits and employee benefit plans have until 2021. The FASB in August also released a proposal that would give most credit unions and community banks until 2022 to comply.

In addition to major accounting standards, U.S. companies also are dealing with the changes to financial reporting caused by the Tax Cuts and Jobs Act. The tax reform legislation ushered in many changes to tax laws, including a steep cut to the corporate income tax rate, and these changes also affected how companies follow U.S. GAAP. The FASB’s staff in January published a question-and-answer document on the FASB’s website, covering queries about the new base erosion anti-abuse tax (BEAT), the Global Intangible Low-Tax Income (GILTI), whether to discount the liability on the deemed repatriation of earnings and whether to discount alternative minimum tax credits that become refundable.

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