FASB's Seidman signals emphasis on converged standards, needs of private companies

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Leslie Seidman, the newly appointed chairman of the Financial Accounting Standards Board (FASB), repeatedly emphasized the board's intention to communicate with constituents and to produce standards in "an open process that encourages and values input from investors, lenders, donors, and auditors", during her January 25 Webcast.

With their decision that some financial assets – plain vanilla assets – should qualify for cost accounting rather than fair value in the new standard for accounting for financial measurement, the FASB and the International Accounting Standards Board (IASB) "are sending a strong signal that they are committed to producing standards that are useful", Seidman said during her Webcast, Overview of the Board's Priorities for 2011.

The plain vanilla financial assets that would qualify for cost accounting would be loan transactions where the entity "has a relationship with the borrower and the loan will be repaid with interest or fees. Securities traded in an active market would not qualify and would be recognized at fair value."

In addition to the standard on accounting for financial instruments, high priority projects for 2011 for the FASB and the IASB will be those where the two boards see the greatest need for improved standards, Seidman said. FASB's ongoing commitment to convergence can be seen in "the number of trips to London" and the high level of staff dedicated to the converged standards.

The two boards have set a target date of June 2011 to issue their converged approach to:

  • Accounting for financial instruments. U.S. GAAP and International Accounting Standards (IAS) are not the same. The two boards are seeking a model for impairment that is part U.S. GAAP and part IAS.
  • Fair value measurement. The two boards will publish a converged definition of fair value, which will be new to the IASB.
  • Leases. The boards have made significant progress in eliminating differences, Seidman said.
  • Revenue recognition.

"Subject to the nature and extent of feedback, however, the boards will take the time necessary to reach a comfort level with these statements", Seidman said. Constituents should consult the FASB Technical Plan and Project Updates for specifics.

Going forward, some projects have been deferred. FASB staff will conduct an analysis of differences between U.S. GAAP and IAS and take a fresh look at priorities.

What's next for IFRS

"This inventory project should help us to decide what is the best course for the U.S. to take", Seidman said. "Where the differences are not that important, for example, should we just adopt a standard? We are concerned about pension accounting and that is not currently on our list."

Seidman said that she had no new information about an effective date for the adoption of International Financial Reporting Standards (IFRS). A FASB Advisory Panel had discussed the question of whether they should be adopted sequentially or all at once – the Big Bang approach, Seidman said. Most members of the panel supported the all-at-once approach because it would enable companies to make all of their systems changes at one time.

Ongoing FASB projects include multi-employer pension plans. "We need to accurately diagnose the problem. Not everything is a standards issue", Seidman said.

Private company financial reporting

The Financial Accounting Foundation will be reviewing the report of the Blue Ribbon Panel in the next few weeks. The panel has recommended a separate standards board for private companies because it felt that the FASB was not responsive enough to private company needs, Seidman said.

"We are hoping to restore their confidence", Seidman said. "We have assigned staff to each project that will focus on the needs of private companies. One of our new board members, Daryl Buck, will bring the private company viewpoint to the board's discussions.

When asked whether there would be a review of existing standards from a private company perspective, Seidman said that a decision about a framework would have to be made before any discussion of review could take place.

Comments from constituents

Seidman emphasized the importance of communication with and input from constituents on major projects. The revenue recognition project received more than 1,000 comment letters, Seidman said. Though constituents generally accepted the goal of a single standard, they articulated problems with the underlying principle, called for adequate implementation guidance, and questioned the complexity of detail, cost, and benefits.

Leslie Seidman background

Seidman has served on the FASB since 2003. From 1994 to1999, Seidman was a member of the FASB staff. She began as an Industry Fellow, after which she served as a project manager and as the assistant director of research and technical activities.

Between her two tenures at the FASB, Seidman founded and managed a financial reporting consulting firm, serving corporations, accounting firms, and other organizations. Seidman was a vice president in the accounting policies department of J.P. Morgan & Co. Inc., where she was responsible for establishing accounting policies for new financial products, particularly securities and derivatives, and analyzing and implementing new accounting standards.

More than 750 letters were received on the exposure documents for the leasing standard. Many commented that "lessor accounting was not broken", Seidman said. The joint discussion concluded that there were many issues that still needed to be addressed from the perspectives of both the lessee and lessor, including the definition of a lease, the question of bundled services, and the income statement presentation. The goal is to make lessor accounting complement lessee accounting.

New board members

The number of board members has been expanded to seven from five members, a change that Seidman said she has strongly supported. The two new board members are Daryl E. Buck R. and Harold "Hal" Schroeder.

Prior to joining the board, Buck spent 18 years as senior vice president and chief financial officer of Reasor's Holding Company, a private company with $400 million in annual sales. Buck served on the Blue-Ribbon Panel on Standard-Setting for Private Companies. He also was a founding member of the FASB/AICPA Private Company Financial Reporting Committee, serving from 2007 to 2009.

Schroeder is a CPA with more than 30 years of experience in investing and financial reporting. He brings a strong investor perspective to the FASB, with more than 15 years of experience working with all facets of the investment community. Prior to joining the board, Schroeder was a partner at Carlson Capital, L.P., a Dallas-based money manager with assets under management of more than $6 billion.

The Webcast was moderated by Denise Lugo, news correspondent for BNA Publications.

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