Richard Jones, the new chairman of the Financial Accounting Standards Board, said Tuesday he is making post-implementation reviews of standards one of his top priorities, as well as taking a closer look at all the many projects on FASB’s crowded agenda.
At a session Tuesday during the American Institute of CPAs’ virtual national conference on banks and savings institutions, Jones acknowledged that he is only three months into his role as FASB chair and he has been receiving plenty of advice from various sources, including his son, who is taking some undergraduate accounting courses. Jones’s son recently received his intermediate accounting textbook for his remote summer semester and sent a text to his father, writing, “Dad, chapter one of my intermediate accounting textbook doesn’t make working at the FASB sound like much fun.”
Jones said he is enjoying his new role and, prior to the lockdown, he was able to spend a few weeks at FASB’s offices in Norwalk, Connecticut, learning the ropes from his predecessor, former chairman Russ Golden, before shifting to a remote working environment.
He said his immediate priority as FASB chair is to learn as much as he can from those who are involved in the standard-setting process, internally and externally. He has been meeting with the other FASB board members and staffers to understand the board’s internal processes. He has also been conferring with various stakeholder groups to understand their perspectives on FASB, including banking regulators, and representatives of the American Bankers Association, Financial Executives International, and other professional organizations.
He and the other board members are currently doing a review of FASB’s technical agenda, which includes 24 active projects and eight research projects. FASB has also been getting requests from stakeholders for another 20 projects to add to the agenda. Before making any further changes in accounting standards, though, he believes certain criteria need to be met.
“Broadly speaking, to change accounting standards, we must make a clear case for change,” said Jones. “As I see it, there are three primary reasons for change: first, to provide users with better, more useful information that will directly influence their decisions and behavior; second, to remove cost and complexity from the system; and third, to clarify and improve consistency around the codification.”
One of his top priorities is the post-implementation review process, which is now in the hands of FASB after previously being under the control of its parent organization, the Financial Accounting Foundation.
“The PIR process is the ‘quality control’ phase of the FASB’s standard-setting process,” said Jones. “It begins as soon as a final standard is issued and continues for as long as there’s a need to improve it. It helps us determine whether the value of information the standard generates justifies the resources required to deliver it. The PIR process gives the FASB the opportunity to identify and address any areas for improvement in ‘real time.’”
He noted that FASB has already launched its PIR process for the credit losses, leases and revenue recognition standards. The PIR process has already led to some improvements to those standards, he noted, including effective date deferrals for certain groups, updates to improve and simplify the guidance, staff question-and-answer documents to address practice issues, educational materials and implementation web pages, revenue recognition and credit losses transition resource groups, and greater opportunities for outreach and educational sessions. FASB plans to continue to evaluate the need for additional guidance or educational support materials, he added, and recently launched a PIR web portal that provides access to updates on each stage of the PIR process.
Jones also discussed how FASB has been responding to the COVID-19 pandemic. “Since March, the FASB has shifted its priorities to focus on stakeholder support,” he said. “We intentionally slowed standard setting to focus on effective dates. We got to work on Q&As and other educational materials to address questions about lease abatements, which became a huge issue when COVID hit. We also are working with the AICPA and banking regulators, who are developing clarifying guidance on other unique accounting issues companies have faced.”
To make it easier to find the information, FASB has created a COVID-19 web portal that’s available through the FASB home page. “In the coming months, we will continue to be cognizant of the environment in which our stakeholders operate,” said Jones. “Specifically, we’ll focus on emerging and critical issues, improvements to standards that have been issued but not yet implemented, longer exposure periods and implementation dates that are more responsive to the demands of that environment.”
CECL transition
FASB deputy technical director Shayne Kuhaneck appeared with Jones during the conference session to discuss some of the recent standards such as the credit losses standard, also known as CECL for the Current Expected Credit Loss model it uses. He pointed out that FASB formed a Transition Resource Group to help banks and other financial institutions implement CECL.
“The TRG work really started before the standard was even issued by listening to our stakeholders and making changes prior to the issuance of the update, to address issues for smaller institutions to help with implementation,” he noted. “Through the efforts of the TRG, we have issued a series of educational papers with interpretive guidance. And ultimately much of that interpretive guidance was codified to the issuance of six [accounting standards updates].”
FASB has been looking into what the expected costs of the standard might be and the anticipated benefits to be gained from those costs. “At the time of issuance, the board determined that the expected benefits outweighed the potential cost of the standard for various reasons,” said Kuhaneck. “It’s our job now to determine if that is indeed the case. Therefore we’re performing outreach with preparers, auditors, regulators, academics and users to determine what is working well or not so well, what can be improved, and what topics need more education. Were the assumptions made as a result of the deliberations and feedback accurate, or do we need to make further changes? As part of this process, we are also collecting data from 10-Qs and eventually the 10-K earnings calls and call reports to see what the data trends look like over time. All of this will ultimately inform the board during future deliberations. Additionally, many of these activities will assist us in determining if there are changes that need to be made to assist smaller and private institutions with their implementation efforts.”
One of the biggest pieces of feedback FASB received during implementation came from questions about simplified methods for calculating CECL, and matters to think about when performing estimations, particularly for smaller institutions. That feedback resulted in the generation of the two staff Q&A documents with guidance especially aimed at smaller financial institutions to ease the burden of implementation.
FASB did some training sessions with smaller financial institutions before the COVID-19 pandemic restricted the travel of its staff and board members. “COVID-19 has certainly had an impact on our travel,” said Kuhaneck. “We are trying to work with groups of smaller institutions to provide these sessions where virtual capabilities are available and it makes sense.”
FASB plans to host a roundtable in the near future to discuss how it might provide further assistance to smaller financial institutions with CECL implementation. It will probably conduct a virtual event similar to the one FASB is hosting this Friday for the leases standard.
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