Accounting standard setters are fine-tuning the rules for the standards that will come into effect in the next few years, officials say.
Financial Accounting Standards Board Chairman Russell Golden explained how the FASB uses what it calls the “Kaizen” approach to standard setting, a Japanese word meaning “change for the better.”
“It describes a process of continuous and incremental improvements as opposed to sweeping changes,” he said Tuesday during a speech at the AICPA conference on current SEC and PCAOB developments in Washington. , DC. He noted that the FASB had focused on successfully implementing new standards for recognizing revenue, credit losses, leases and hedges.
“Stakeholders have also expressed concerns about how the credit loss standard will be audited and its potential impact on capital reserve requirements,” he said. “For this reason, we continue to meet with regulators, including banking regulators, to discuss issues that arise. We share the questions we receive, as well as the answers to those questions, with these organizations to ensure that the interpretations are consistent with the board’s intent. And FASB staff periodically provide training to agency credit loss reviewers. The FASB remains committed to continuing to work with the SEC, PCAOB and banking regulators to ensure smooth and timely adoption.
The FASB has also proactively addressed issues with the implementation of the new lease standard, he pointed out. “Last week, we voted to move forward with several changes intended to reduce unnecessary costs, without compromising the ultimate quality of information provided to investors,” Golden said. “At this meeting, we asked FASB staff to draft a proposal for an update to accounting standards that would simplify transition requirements and, for lessors, provide a practical expedient for the separation of non-lease components from lease components. . We also voted in favor of a final standard that reduces a tenant’s transition cost for historic land easements. Land easements – or rights of way – represent the right to use, access or cross another entity’s land for a specific purpose. We believe these changes will help ensure rapid adoption of our lease standard.
Sue Lloyd, vice chair of the International Accounting Standards Board, who worked with the FASB on the convergence of international financial reporting standards with U.S. GAAP before the two boards split over some details of several of the new standards , also spoke at the conference.
“As you know, we have worked closely with the Financial Accounting Standards Board on many of these new standards,” she said. “And even though the two councils have not always resulted in identical standards, we have evolved in the same direction. We were delighted to achieve this. Both boards moved from incurred loss to accounting for expected credit losses for financial assets. We have also both recorded former operating leases on the lessees’ balance sheet. And the new revenue recognition requirements of IFRS and US GAAP are virtually identical, meaning revenue, which is a key performance measure, should be directly comparable around the world.
She predicted that the new standards would bring significant benefits. “To name some of the key improvements, information on important metrics, such as revenue recognized by businesses and expected credit losses for lenders, will be better,” she said. “Recognising operating leases on the balance sheet fills a major hole in the representation of an entity’s leverage effect. And international comparability will be significantly improved for insurance companies when IFRS 17 is implemented.