Audit Committee Leadership Network, October 2016
On September 27, 2016, members of the Audit Committee Leadership Network (ACLN) met with the chair of the Financial Accounting Standards Board (FASB), Russell Golden, for a discussion of the FASB’s operations, agenda, and priorities.
In conversations before and during the meeting, Mr. Golden and ACLN members touched on various topics related to the FASB as an organization and as the developer of the accounting standards known as generally accepted accounting principles (GAAP):
FASB mission, process, and oversight
While the Securities and Exchange Commission (SEC) has ultimate authority over accounting standards and works closely with the FASB, the FASB and its oversight body, the Financial Accounting Foundation (FAF), carefully defend their independence from any particular interests. The FASB has a funding mechanism that makes government funding unnecessary. Striving for maximum objectivity, it develops its standards using a deliberative process that weighs input from a multitude of stakeholders about the costs and benefits of potential standards.
Current standard-setting efforts
The FASB has published several important standards in recent years, prompting concerns that the pace of change is overwhelming many companies. Mr. Golden explained that the FASB is trying to address the overload by focusing on high-priority projects and timing the implementation deadlines for new standards appropriately. Meanwhile, the FASB is also assessing its guidance on materiality, balancing the need for consistency with the SEC and the Public Company Accounting Oversight Board (PCAOB) against the need to maintain the levels of disclosure preferred by investors. In the international arena, the FASB works with other standard setters, including the International Accounting Standards Board (IASB), but Mr. Golden said the focus has shifted from agreeing on a “uniform set of words” to reaching “common outcomes.” He also said that sustainability reporting is not on the FASB’s agenda.
ACLN members noted the value of non-GAAP measures for explaining certain aspects of a company’s business, and Mr. Golden explained that the increase in non-GAAP reporting in recent years is also due to confidence in GAAP, because most non-GAAP measures are derived from GAAP measures. He acknowledged, however, that some measures are not and said transparency about how measures are derived is the best way to help investors understand them.
Outreach to audit committees
Mr. Golden encouraged audit committees to get more involved in the FASB’s standard-setting process and to consider joining its advisory council. He also urged the audit chairs to encourage greater participation by their companies’ chief accounting officers, especially early in a project, and to challenge their companies to stay on top of new standards and their implementation.