The Financial Accounting Standards Advisory Council (FASAC) held its regular quarterly meeting on Tuesday, March 20, 2018. The following topics were discussed:
- Tax Reform and Income Tax Accounting: FASAC members observed that the enactment of the Tax Cuts and Jobs Act on December 22, 2017, resulted in many challenges in companies’ financial reporting, particularly (1) in areas where further clarifications to the tax law were needed and (2) in deploying the internal and external resources to account for, and provide disclosure about, their current and deferred income taxes. Overall, FASAC members observed that the income tax accounting standards provide a durable structure that accommodated the recent tax law changes. Members also expressed their appreciation for the timely issuance of SEC staff views on the application of FASB income tax accounting guidance, the FASB’s recent standard, and the five FASB staff Q&As. FASAC members supported the FASB’s plans to continue to monitor the accounting implications of the Base Erosion Anti-Abuse Tax (BEAT) and global intangible low-taxed income (GILTI). Council members expressed mixed views about the objective and priority of the FASB’s research project on Income Taxes—Backwards Tracing and supported the FASB revisiting and refreshing its disclosure review project on income taxes and research on potential simplifications to accounting for income taxes.
- Implementation of Revenue Recognition: FASAC members participated in the first of a series of discussions on the FASB’s post-effective date assessment of costs and benefits of the revenue recognition standard. Given the recent effective date for public companies, this session focused on the initial and recurring costs of transitioning to the new revenue recognition standard. Some FASAC members, particularly preparers and practitioners, noted that although they were able to leverage their existing information technology systems, the initial level of effort to apply the revenue recognition standard was somewhat higher than originally anticipated. Those members observed that the initial costs were somewhat higher than anticipated because of the need to review all contracts or revenue streams (even in areas where their expected outcome of applying the revenue recognition standard was substantially the same as the prior accounting outcome). Some of those costs were minimized because the information technology systems did not need to be modified. Some members also observed that their contract review process provided some benefits to their companies, such as slight changes to how they negotiate certain contract provisions or increased efficiency from centralizing contract information. FASAC members generally anticipated that the recurring costs of applying the revenue recognition standard would be substantially lower and may generate future savings. Other members, particularly investors and users, generally did not incur incremental costs for their analysis; given the newness of the changes in disclosures, observations about the benefits of that information were premature. FASAC members also discussed use of estimates, the accounting change process, and auditor independence and training (particularly related to companies with a lack of accounting resources).
The FASB chairman provided highlights on FASB activities, and SEC and PCAOB staff members commented on current issues and activities.
The next FASAC meeting will be held on June 8, 2018. For more information on FASAC, visit the FASB website.