By Jason Bramwell
In his first public speech since taking the helm of the Financial Accounting Standards Board (FASB) in early July, Chairman Russell Golden outlined his top four priorities for the standard-setting board's future during an event on September 12 celebrating FASB's fortieth anniversary.
"Our work has not always earned us the top award for popularity. In fact, some folks over the years have said some downright unkind things about us. But in standard setting, seeking to do the right thing is rarely the path to victory in the contest to be the most popular. That's as it should be", Golden said during the [email protected] Conference in New York City, which commemorated FASB's founding by the Financial Accounting Foundation (FAF) in 1973.
Golden said the independence of the FASB is not a right to be exercised, but a privilege to be earned – every day – through all that the board undertakes. How does the FASB earn that privilege?
"In my view, we earn it by being accountable – by following our process, by listening to and taking into account a wide variety of views on the issues we consider", he said. "It means clearly and honestly articulating why our decisions will improve the information that companies and organizations provide to those who use their financial statements – investors, lenders, and others – and why the benefits of those improvements justify their cost. And it means welcoming the judgment of our constituents who will measure our accomplishments against the goals that we set.
"In short, it means rappelling down the high walls of that ivory tower that some people still see at 401 Merritt 7 in Norwalk [Connecticut] and spending a significant amount of time with the people who are directly and indirectly affected by the standards that we set", Golden continued.
During his speech, Golden touched on his four biggest priorities as the FASB begins its next forty years.
1. Improve the efficiency and effectiveness of FASB's operations. As a first step, Golden believes the FASB should evaluate its agenda decision process to ensure that it allows for appropriate consideration of the board's priorities; identifies the problem that needs solving; and identifies cost-effective, implementable solutions that address the identified problem.
"Agenda setting is only the beginning. While it is important to listen to our stakeholders and adjust if applicable, it is also important to complete what we start", he said. "I also believe that we should listen to our stakeholders across the country who have delivered mixed reviews regarding the [FASB Accounting Standards Codification]. Most agree and applaud the concept of the value of codification, but they also observe that, as presently constituted, it is very cumbersome and not user friendly."
Over the coming months, the FASB will conduct an analysis of areas where the codification may be improved.
"We will determine whether we can improve upon how we write and communicate changes to the codification. We will consider if we can and should be more flexible", Golden said. "We also will consider improvements suggested by our stakeholders, and we will begin to rewrite some of the more confusing sections. Currently, for example, we are in the process of rewriting the liabilities and equity section of the codification."
2. Reduce the complexity and cost of applying the standards that FASB sets. In the coming weeks, the FASB and the Private Company Council (PCC) are expected to issue the Private Company Decision-Making Framework, which will aid the PCC and the FASB in identifying opportunities to enhance the relevance of US Generally Accepted Accounting Principles (GAAP) to financial statement users and reduce the cost and complexity of preparing US GAAP financial statements.
The FAF established the PCC in 2012 with the goal of maintaining or improving the relevance of information provided to the users of private company financial statements, while reducing the complexity and cost for private companies.
"That effort started with private companies, but it does not end there", Golden said. "The FASB's collaboration with the PCC will help the FASB identify aspects of GAAP that might be streamlined for all companies – both public and private – as well as for not-for-profit organizations. In a sense, the PCC process represents the first step in simplifying all accounting."
For example, acting on a PCC recommendation, the FASB recently voted to add a narrow scope project to its agenda to address the concerns of public and private company stakeholders on development stage entities. Earlier this summer, the FASB issued for comment three PCC proposals to address the relevance of standards in areas that private companies have said are critical: intangible assets acquired in business combinations, goodwill, and certain types of interest rate swaps.
"This progress affirms my view that the FASB and the PCC are making important strides in their effort to address areas where appropriate changes can reduce costs and complexity while enhancing or maintaining the relevance of GAAP financial statements", he said. "We expect that both public and private companies will see significant benefits from this work."
3. Improve the way FASB communicates with its stakeholders. Golden cited the FASB unveiling a refreshed visual brand identity and a new website earlier this year as ways it has better communicated with stakeholders, including its nontechnical audience. For its technical agenda, FASB is putting in place plans to spend a considerable amount of time and energy addressing implementation and education issues as the board issues new standards, beginning with revenue recognition later this year.
"For each of these significant projects, we will create a transition resource group intended to educate and better understand implementation issues before the implementation process actually begins", he said, adding that the group will focus on three primary areas: education, interpretation, and amendments.
"We plan to include in these groups representatives from the preparer, auditor, and investor communities", Golden added. "We also plan to have both domestic and international participation, including members of the International Accounting Standards Board. I expect that the revenue recognition group will be formed shortly after the standard is issued, and its activities will cease sometime in 2016."
4. Increase cooperation and collaboration with the FAF and the GASB. Golden said he believes the FASB can increase collaboration with the FAF and its sister standard-setting group, the Governmental Accounting Standards Board (GASB), and build a "collective organization that better serves the needs of all of our constituents."
Golden concluded his speech by stating the FASB will work with the FAF and the US Securities and Exchange Commission to realize a vision for the future that will serve the needs of users of US GAAP reports and promote the convergence of global accounting standards.
He said FASB can successfully accomplish its mission of improving financial reporting for US capital markets while also seeking to improve and converge financial reporting internationally through the following three actions:
- Through the development of US GAAP.
- By actively participating in the development of International Financial Reporting Standards (IFRS).
- By enhancing relationships and communications with other national standard setters.
"I hope that when my term as chairman ends, I leave the organization and the US financial reporting system in a place where there is more useful information for investors and less complexity in standards for preparers, and that those benefits are achieved for both private and public companies", Golden concluded. "I also hope that US GAAP and IFRS will be closer in many key areas than they are today."