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Thursday, April 10, 2014
[Scene: A '70s-era, flapping-number alarm clock on a
doily-covered nightstand goes off at 6 a.m. Bill Murray lies asleep
under a quilt. Cue Sonny and Cher.]
Then put your little hand in mine/There ain't no hill or
mountain we can't climb … Babe, I got you babe…
[DJ's voice on radio] "Okay, campers! Rise and shine! And don't
forget your booties, 'cause it's COLD out there
Unfortunately, for the hard-working campers in Norwalk, Conn.,
FASB's long-running project on the reporting of going concern has
had its "Groundhog Day" moments. This is a project that the
Financial Accounting Standards Board started in 2008, at about the
same time that big banks, giant insurer AIG and the Big Three US
automakers were reeling in the crisis, and just before TARP became
a household word.
An unfortunate repetition of events seems to be a feature of
FASB's effort aimed at improving reporting - including footnote
disclosures - surrounding the presumption that reporting entities
will still be around as going concerns. That presumption is a
linchpin notion in accounting.
For the so-called "early-warning disclosures" that were part of
the board's proposal for improved reporting on going concern,
FASB's March 26 meeting marked the end for those particular
footnote reporting plans.
FASB Rides the See-Saw.
After the ups-and-downs of this see-saw of a standard-setting
project, FASB is on a course to essentially import into GAAP what
is now in auditing standards. More ambitious improvements have been
A look back at the log of BBNA's reporting on the going concern
effort contains terms such as "tortuous path" and "twists and
turns." (See 08 APPR 412, 5/11/12). Things were proposed, then
withdrawn (particularly when it looked like similar info would be
called for in disclosures about liquidity and interest rate risk, a
spin-off effort from FASB about a huge undertaking on financial
instruments,), then proposed again … then ultimately nixed.
To further complicate things, FASB - facing difficult rulemaking
challenges and meeting stiff resistance from some constituents --
in the end placed the liquidity and interest rate risk disclosures
project on a very cold back burner. It remains there. Board members
Thomas Linsmeier and Marc Siegel have lamented the effective
tabling of a liquidity disclosures effort.
The early-warning disclosures made it into FASB's June 2013
draft standard on going concern, but were dropped at the board's
March 26 meeting. The formal wording of a staff summary of FASB's
tentative decisions belies the nature of some fairly testy
exchanges among board members that day.
"The exposure draft proposed that entities would begin
disclosures of going concern uncertainties when certain
early-warning disclosure criteria were met," according to the
summary. "In addition to early-warning disclosures, SEC filers
would assess whether there is substantial doubt about the entity's
ability to continue as a going concern for a period of 24 months
after the balance sheet date.
"In light of the feedback received on the exposure draft, the board
decided not to require the proposed early-warning disclosures," the
staff continued in its summing up of the March 26 discussions.
"Instead, the Board decided to pursue an approach that would
require disclosures when there is substantial doubt similar to
disclosures provided today under existing auditing standards."
Lawrence Smith, perhaps the most vocal of FASB's advocates for
more revelatory reporting on going concern, sounded themes March 26
with words that were fairly similar to what he used back on April
11, 2012. In both meetings, he recalled advice to FASB favoring
going concern-type disclosures that came from members of advisory
councils focused on smaller business and private companies -
non-filers who do not have to carry out risks-related disclosures
in non-audited MD&A.
At FASB's March 26 meeting, James Kroeker, the board's vice
chairman and a former chief accountant at the Securities and
Exchange Commission, said that, as the proposed reporting "relates
to early-warning aspects, certainly for public companies there are
voluminous requirements already about risks." He was referring to
management's discussion and analysis, SEC filers' non-audited
Kroeker Seeks to Avoid Sowing Confusion,
Kroeker suggested that added early-warning disclosures would sow
confusion. (The debate between him and other board members did not
make for the more contentious exchanges.)
Linsmeier and Smith were critical of the overall MD&A
picture in the risks-revealing department. Linsmeier said that he
does not believe the disclosures in SEC filings are sufficient.
Smith Seeks to "Focus People on the Correct
Smith seemed to make a can't-see-the-forest-for the trees-kind
of argument about MD&A's effectiveness. He disagreed with
Kroeker's point about the audited disclosures creating
"I thought that our requirement that you only need to make these
disclosures once you reach a more-likely-than-not threshold would
focus people on the correct risks, or the correct circumstances
facing the company to cause it to need to consider other courses of
action outside the ordinary course of business," he said March
26. Smith argued that the disclosures "would create greater
and better focus.
"Because right now," he added. "I mean, I think when you pick up
MD&A, when you read all the stuff on risk, you kind of scratch
your head and say, 'why would I ever invest in this company,
considering all these risks?' Because, I don't think, it's put in
the appropriate context", he said, "how realistic those risks are,
or what degree those risks are really facing the company."
For his part, in the debate with Smith, Kroeker suggested that,
with the added disclosures proposed earlier in the going concern
project, there would be a tendency "to overdisclose those
Another board member, Harold Schroeder proposed better targeting
of the caution-light disclosures. He said he was looking for
disclosures - reduced from MD&A's -- about more imminent risks
that would fall in a 30 to 50 percent probability range, rather
than a 0 to 30 percent range that he indicated is reflected in
voluminous MD&A today. That would send a message of "here are
the ones that we are concerned about today," Schroeder
Smith and Siegel proposed that a more general project on
companies' reporting about risks and uncertainties - a topic on
which FASB's standard-setting "fell way short" in past years, Smith
said -- perhaps should be considered for the board's next
Almost certainly, that would give rise to the citing of
previously defined views and some time-worn, perennial themes in
accounting - in other words, some reliving of events, in the same
way that the cynical Pittsburgh TV weather forecaster played by
Bill Murray faced life, day-by-identical-day, in "Groundhog
Such is the lot of standard-setters in it for the long haul.
Tough sledding in Punxsutawney.
Bloomberg BNA Staff Correspondent
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