Society Convenes With FASB

Key Challenges Facing the Profession

Herz noted that the FASB has been asked to accelerate its issuance of pronouncements. He also remarked that there has been criticism by some who believe there are too many parties setting standards, compelling the FASB to take sole responsibility for issuing accounting standards.

The Changing Role of the EITF

As part of its effort to assume exclusive responsibility for issuing accounting standards, the FASB has asserted greater control over the Emerging Issues Task Force (EITF), Herz said. Prior to December 2002, the EITF acted independently despite officially being a part of the FASB. At that time, FASB members did not provide input on and did not ratify consensus opinions.

Now, the FASB requires ratification of all EITF pronouncements. In addition, two FASB members sit on the EITF agenda committee, which identifies matters to be considered by the EITF, especially unresolved issues in which only one reasonable answer exists and which are not being addressed by an active FASB project. Further, some EITF consensuses will be subject to a short comment period. Both Herz and Trott acknowledged that the issuance of EITF consensuses has been delayed due to increased FASB oversight.

The Role of Resource Groups

Prior to issuing proposed accounting standards, the FASB works with groups representing various constituencies. Herz indicated that the FASB has little contact with auditors and preparers of financial statements of smaller public companies, but is interested in their opinions. FASB members view the NYSSCPA as representing that constituency and are interested in beginning an ongoing dialogue with the Society in general and FAS in particular to obtain input on critical issues.

Prior to FAS meetings, Trott plans to discuss with Dyson the status of specific issues that he believes would be of interest to FAS. In addition, FAS members may monitor the progress of certain projects listed on the FASB website and write letters commenting on decisions made on such projects before an exposure draft is issued.

FASB Review of Comment Letters

Trott indicated that the FASB is interested in all responses to proposed pronouncements, particularly those that present a specific issue, such as the relationship of the proposed standard to the underlying economic substance, and that recommend a solution on circumstances not previously considered. The FASB is also interested in whether the proposed standard is auditable.

Both Herz and Trott asserted that the exposure draft is not considered complete when issued and that the FASB will consider any new information provided in comment letters. Though one goal of the exposure drafts is to reflect all relevant issues, both men acknowledged that this objective is not always achieved.

Comment Period Timeframes

Trott said the duration of the comment period for future proposals would depend upon the issue under consideration. For example, comment periods for exposure drafts on certain complex issues, such as business combinations and stock compensation plans, would most likely exceed 45 days.

Issues Relating to SFAS 150 and FIN 46

Herz and Trott both allowed that the numerous amendments to Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” and FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” are causing chaos in nonpublic companies. In their view, the final decisions, while appropriate, could have been more effectively communicated.

Simplification of Principles

The meeting also revealed that the FASB is simplifying the presentation of accounting principles by placing all guidance in the Current Text (in hard copy) according to subject matter. Thus, the Current Text will present and cross-reference all accounting guidance, such as Statements, Interpretations, EITF consensuses, final FSPs and literature from the American Institute of CPAs.

The Purpose of FSPs

FSPs are issued to provide implementation guidance, as opposed to rules, when the FASB wants resolution of a single issue in a short period of time. FSPs have also been used to defer the effective dates of pronouncements. They are equivalent to technical bulletins or FASB staff announcements in the hierarchy of generally accepted accounting principles (GAAP).

Trott noted that implementation guidance included in Statements of Financial Accounting Standards (Statements) or FASB Interpretations has a tendency to increase the body of rules. The FASB would like to present fewer examples and other guidance in Statements and Interpretations and more implementation guidance in a lower-level GAAP, such as FSPs, that would be more illustrative than definitive.

According to Trott, the short comment period (30 days) for FSPs is deemed sufficient since only a single issue is addressed. The preponderance of FSPs in 2003 is linked to the myriad issues that arose in connection with FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.”

International Accounting Standards

Both men indicated that the FASB and the International Accounting Standards Board (IASB) will work closely together to develop consistent accounting principles on major issues. An example of a major difference between the two organizations is the classification of debt. The IASB requires debt to be classified as current if, at the balance-sheet date, it is due within one year either because of the original maturity date or because of default on the part of the borrower. FASB permits debt to be classified as long-term if, after the balance sheet date but prior to the issuance of the financial statements, it is at a certain stage of being refinanced, or if the lender provides a waiver, in writing, of his or her right to demand payment. The FASB has adopted the IASB approach of classifying debt as current only if the refinancing or waiver occurred prior or at the balance-sheet date. Debt that was refinanced or was waived after the balance-sheet date is classified as noncurrent, although the status of the debt would be disclosed as a subsequent event.

Robert A. Dyson, director of quality control for Friedman Alpren & Green LLP in Manhattan, is chair of the NYSSCPA’s Financial Accounting Standards Committee. Roseanne T. Farley is a member of the same committee.