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January 27, 2023

FASB Took It Easy in 2022

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While the PCAOB has been on a mission to scare the pants off of auditors everywhere in the past year with record fines and scary speeches, the Financial Accounting Standards Board took a much more chill approach to 2022.

A Thomson Reuters piece published last week informs us that FASB ended the year having issued a measly six accounting standard updates — a notable decrease from the five years prior — “much to the glee of the accounting profession.”

In 2021, the board issued 10 new accounting standard updates (ASUs); in 2020, 11 were issued; in 2019, 12; and in 2018, 20, according to the board’s website. The FASB’s record breaking year for the past two decades took place in 2010 with 29 new standards issued.

This year’s falloff comes during a pivotal year for the board, which over the past year had been doing outreach broadly via an agenda consultation process to set its five-year agenda for 2022 to 2026. As part of that effort, the board streamlined its technical agenda, dropped some projects and revised others.

The six ASUs are:

  • ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method [PDF];
  • ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures [PDF];
  • ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions [PDF];
  • ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations [PDF];
  • ASU No. 2022-05, Financial Services—Insurance (Topic 944): Transition for Sold Contracts [PDF];
  • ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 [PDF].

In 2022, FASB sought public comment nine times, two of those exposure drafts are reaching comment deadline this month: Proposed Accounting Standards Update—Leases (Topic 842): Common Control Arrangements and Proposed Statement of Financial Accounting Concepts No. 8—Conceptual Framework for Financial Reporting—Chapter 2: The Reporting Entity. So hurry up and get those comments in or forever hold your peace.

On its technical agenda, updated on December 21, 2022, we can see what they’re working on going forward. I’ve embedded the whole document for all two of you who really enjoy educating yourselves on FASB doings.

FASB Technical Agenda Overview by Adrienne Gonzalez on Scribd

Crypto is obviously the big (and ambitious) one. The software costs one is also pretty interesting as the current rules are extremely outdated as in several decades outdated, which might as well be several lifetimes given the life cycle of software nowadays. Per this KPMG breakdown on the issue, several Board members indicated they want to consider both software development and acquisition (e.g. through licensing) costs, not wanting vastly disparate accounting answers to result solely based on an entity’s decision to ‘build’ versus ‘buy’. So stay tuned for that.

Before I wrap this up I want to call attention to a New York Times article from August that we meant to get to earlier in the year but never did. In “Meet the accountants who may become the new power brokers of taxes,” NYT profiles the benevolent overlords of GAAP who, thanks to the Inflation Reduction Act, could wield massive power as they tackle a tweak of corporate taxes. A task that is “squishier than you might think” wrote Stephen Gandel.

So what do we know about the accounting rule makers and the leaders of the foundation that oversees them, who could all of a sudden have a big say in tax policy?

The group lacks diversity: The board is made up of four white men and three white women. A spokesman for FASB told DealBook that the organization, which was founded in 1973, had never had a board member of color.

It’s also politically connected: Kathleen Casey, the head of the board’s nominating committee, is a former S.E.C. commissioner and a former chief of staff for Senator Richard Shelby, Republican of Alabama, who has long called for lower taxes for corporations and the wealthy.

And its members are well paid: Richard Jones, a former top executive of the accounting firm Ernst & Young who left to be the chair of FASB, was paid a base salary of $1 million last year, according to a tax filing. The lowest salary among the board members was still north of $800,000.

What’s more, Mr. Jones does not appear to be fan of the minimum corporate tax. Last year, he said in a speech that he was against basing a minimum corporate tax on book income.

Mr. Jones said the group’s role was to set accounting rules that best conveyed the health of a company. Using book income to determine tax payments would inject public policy into financial accounting, he said, making it hard for his organization to do its job.

“It would be an additional pressure, there’s no doubt, on our mission and what we do,” he said.

Here’s another read on that issue.

And that’s it for FASB’s year in review. Woo.

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