FASB to Examine How Companies Report Performance

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By Steve Burkholder

July 27 — How companies might improve their reporting of performance is on the list of topics that the main advisory panel of the Financial Accounting Standards Board plans to air Sept. 29 as FASB sets its next-up agenda of significant projects.

At its July 24 board meeting, FASB focused partly on the roughly year-old research project on financial performance reporting.

‘Big Ticket' Projects?

If the performance reporting effort garners enough support in a pending survey of FASB's advisory board and other panel members, it could be elevated to an active standard-setting effort. That action would hinge on FASB members' desires regarding what board Chairman Russell Golden calls “big-ticket” issues for potential projects.

By “big ticket,” Golden wrote in a “From the Chairman's Desk” memo at FASB's website, he means topics that are comprehensive and which affect “multiple industries” and “both public and private companies and not-for-profit organizations.”

“Now that some of our major projects are winding down – and good progress is being made on our narrow-focus simplification projects – the FASB is determining whether there are additional ‘big ticket’ issues we should tackle – and if so, when we should address them,” the board chairman wrote.

Major Rules Out in Q4

FASB expects to issue new standards on leases and on financial instruments in the fourth quarter of this year.

Within the multi-front instruments project, the board plans separate accounting standards updates on classification and measurement, on the one hand, and on impairment. The latter includes loan losses and reserving for them, a topic of huge importance for banks.

The planned standards on leases and impairment are expected to affect companies significantly. The long-running instruments classification and measurement effort has resulted in FASB pulling back from making significant changes to current accounting prescriptions that were proffered some five years ago.

FASB's Financial Accounting Standards Advisory Council plans to take up the board's agenda priorities and potential standard-setting topics at the council's Sept. 29 meeting.

FASB's comparatively young project on financial performance reporting is basically a much scaled-down spinoff of the board's controversial effort on financial statement presentation.

In the former project, FASB, working with the International Accounting Standards Board, seriously explored display of profit and loss that placed substantially less emphasis on the traditional net income line. Earnings per share is drawn from that bottom-line amount.

As the debate in accounting circles swirled, FASB and IASB also elected to focus the majority of its joint standard-setting time and resources to completing the high-priority joint projects on revenue reporting, leases and financial instruments. In 2011, the boards put the presentation project on the back burner.

Increase Performance Statement Understandability

In its performance reporting effort, FASB aims to study and evaluate “improvements to the performance statement that would increase the understandability” of that statement “by presenting certain items that may affect the amount, timing and uncertainty of an entity's cash flows.”

In its discussions, some common themes have been disaggregation and distinguishing between events that are recurring and nonrecurring or which take place relatively infrequently.

At its July 24 meeting, FASB focused on remeasurements and how the transparency of such regaugings can be improved.

The board explored remeasurement as “a way to distinguish between earnings components to provide additional disaggregation” in the performance statement, according to a staff-written FASB summary of board decisions.

The board didn't take concrete, standard-setting action. However, FASB directed its staff to study “other methods for distinguishing between different earnings components for discussion at future meetings, including (1) displaying natural and/or functional lines and (2) better describing what can be grouped within a line item,” according to the summary of decisions.

FASB doesn't plan to hold its next meeting on financial performance reporting until after the Sept. 29 meeting of FASAC.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

A project update on FASB's financial performance reporting effort is available at http://www.fasb.org/jsp/FASB/Page/TechnicalAgendaPage&cid=1175805470156, under “Research.” Golden's “From the Chairman's Desk” memo is posted at http://www.fasb.org/jsp/FASB/Page/LandingPage&cid=1176163728013.