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Evaluation of the FASB's 2021 agenda consultation report's findings

The extensive feedback FASB received when it asked stakeholders where it should concentrate its time and resources is summarized in the 2021 agenda consultation report.

According to FASB Chair Richard Jones and Technical Director Hillary Salo, the consultation project is significant because the group "sought to do more than create a new project lineup. We wanted to offer stakeholders a broader opportunity to weigh in on the FASB’s future direction."

Projects for the FASB are either added to its technical or research agenda. Only the organization's chair may direct and set research projects that may later be added to the technical agenda; however, projects that are added to or removed from the technical agenda require approval from at least a majority of FASB members. New accounting standards can only result from technical agenda projects.

Some key points from the FASB consultation are summarized below.

Projects added to technical agenda

FASB added projects on accounting and disclosure for a number of topics, including these three, based on the feedback it received.

Digital assets: 445 of the 522 responses to the FASB's request for comments specifically mentioned digital assets. Nearly all comments urged FASB to treat this as a top priority and suggested that these assets be initially and subsequently valued at fair value.

All types of stakeholders responded, and many of the comments centered on digital assets like bitcoin.

The project's scope will be decided at a subsequent FASB meeting; it includes improving the accounting and disclosure of some digital assets. The study of digital assets will continue for the time being.

Investors are increasingly asking for more financial statement details about the costs and fair values of the assets they own. Many of the companies that responded already have digital assets or intend to do so. Today's generally accepted accounting principles (GAAP) do not provide any specific guidance, and the intangible accounting model under Accounting Standards Codification Topic 350, which is widely used, does not take into account the economics or the way businesses use digital assets.

For those who prepare financial statements and those who use them, the new varieties of digital assets add complexity. All of these problems, along with the volatility of the market for these assets, point to a clear and significant need to enhance GAAP, one of the technical agenda's criteria.

Environmental credit programs: ESG transactions, such as renewable energy credits, emissions allowances, and carbon offsets, were mentioned in comments as an emerging area where FASB requested feedback.

According to responses, the absence of guidance in GAAP results in practice diversity and the need for considerable time and discretion when it comes to the accounting for ESG-related transactions and credits. Surprisingly, some people responded that ESG-related transactions were not generally difficult.

FASB added a project on accounting for environmental credits to its technical agenda in May after adding a project on regulatory credits to its research agenda in December. Improved recognition, measurement, presentation, and disclosure by participants in compliance programs, voluntary programs that generate environmental credits, and nongovernmental producers of environmental credits are the initial goals of the project.

Costs of software: More than one-third of respondents offered feedback on this topic, and half of them said that FASB should give it top priority.

Many people pointed out how frequently businesses create software and pay for software as a result of switching to cloud-based solutions. They noted that modifications to the software industry might have rendered outdated or more challenging to apply existing accounting guidance that distinguishes between software developed for internal use and software developed for sale, lease, or other marketing.

In its December decision, FASB decided to include software costs in its study on intangible assets. In order to modernize accounting for and improve disclosure of costs to internally develop or acquire software, it added a separate project to its technical agenda in June.

Practitioners faced significant challenges  when tracking costs and classifying them as they were incurred to determine whether they should be capitalized or expensed under current GAAP. It is agreeable that standards should adapt to changes in the sector because the potential advantages of change would outweigh the costs.

Projects not added to technical agenda

In its request for comments, FASB listed a number of topics that it believed to be areas of GAAP that were overly complex and expensive. However, some subjects were left off the technical agenda in response to feedback, such as balance sheet classification, debt modifications, and separating liabilities from equity.

Investors have access to sufficient information in the classified balance sheets, and there are no significant weaknesses. It is well known that there is already sufficient guidance on accounting for debt modifications and extinguishments; even though the accounting can be difficult, more rules would not be beneficial in this case.

Liabilities versus equity accounting is a topic on which FASB has been focusing for some time. One of its current projects is to clarify and improve the current accounting standards in this area, which can be difficult to implement. Despite the conflicting opinions expressed in this category, there are no significant issues that call for changing the established advice.

Materiality considerations for disclosures was the project that received the most low priority responses. The majority of respondents did not see any advantages in adding materiality guidance to each codification topic because GAAP already provides general guidance that the codification does not have to be applied to immaterial items.

It seems like there is always something to say about what "materiality" is. With its recently proposed rules on climate-related disclosures, the Securities and Exchange Commission (SEC) has drawn attention to materiality by using a different standard than the organization has in the past (the Supreme Court definition, based on importance to investors in their decision-making). There is no need to make financial reporting more complicated (or expensive) by introducing more rigid materiality standards. In making their materiality determinations, financial statement preparers and auditors can use their professional judgment, current auditing standards, and SEC guidelines.

As it works on its technical and research agenda projects, FASB will continue to use the comments it has received as well as stakeholder outreach. Review the organization's feedback summary regarding its request for comments for more details.



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