FASB maps ‘one-stop shop’ expense disclosure proposal

Dive Brief:

The Financial Accounting Standards Board agreed Wednesday to authorize the drafting of a newly proposed standards update that would require companies to break out expenses for employee compensation, depreciation, intangible asset amortization and inventory in the notes to their financial statements.
The proposal sparked debate during the meeting over how to best calculate inventory and drew a critique from one member who said the proposal should have required the breakout of even more details such as company costs related to raw materials, freight and fuel costs.
Several FASB members said investors have provided positive feedback already but that they hoped to get a better sense from preparers of the cost and operability of the new requirements in the public comment period. “We actually heard really strong support for this one stop shop approach to disaggregation from investors who felt this table with all the aggregation in one place was going to be a huge time saver to them,” Christine Ann Botosan said, during a live-streamed video of the meeting.

Dive Insight:

While some companies already disclose some expense information in their financial reports, the requirements and the planned format in which they appear will be new for most companies.

They’ve been a long time coming. The FASB Chair Richard Jones said the proposal has been in the works since at least 2004, noting that improvements to financial statements that are subject to generally accepted accounting principles has long been at the top of the list for investors.

A joint project on financial statement presentation ultimately led to a discussion paper in 2009 that asserted that insufficient disaggregation hampers users’ ability to analyze financial statements, Jones said. But in 2019 the FASB voted to pause the project to focus on other items.

Jones said he was aware that the new requirements carried a cost but was hopeful that a solution could be found that would address such challenges.

Having worked in companies who did 200 acquisitions and had 200 different systems, Jones said he understands that pulling information together for such a company is a significant task.“But I think the key is after 20 years we’re now going to issue an exposure draft and that gives all of our stakeholders a chance to weigh in,” Jones said.

The decision comes during a busy week for the FASB. The U.S. accounting standard setter on Monday issued a lease standards update followed by another standards update Wednesday which expands the use of the proportional amortization accounting method beyond low-income housing tax credit investments to other programs such as Renewable Energy Tax Credits.

And at Wednesday’s meeting the board also authorized the staff to draft another proposed standards update involving guidance on credit losses.

Under the current guidance, known as CECL or Topic 326, lenders are currently required to calculate, and set aside reserves based on, expected credit losses at the time a loan is made rather than, as they did traditionally, on an incurred basis, generally after the loan has been on the books for a year, CFO Dive previously reported.

Some lenders have argued the expected credit loss calculation captures any impact on loan receivables, making the models they developed to measure the impact on their cash flows in their TDR reporting unnecessary.