Volume 25, No. 2: Where FASB Has Been – And Where It’s Going in 2016
Investors look to the FASB and its overseer, the SEC, for the establishment of accounting standards that should present outsiders with the economic reality within investee companies. The key word is “standards:” according to the Merriam-Webster dictionary, “something set up and established by authority as a rule for the measure of quantity, weight, extent, value, or quality.” When they work, standards provide investors with a uniform way of comparing one company’s financial status and performance to another one. Even if investors come up with say, their own definition of earnings when they ignore certain expenses, at least they’re given a “standardized” starting point for their own ideas about the constitution of performance.
Investors don’t usually wait with bated breath for new standards. They’ll sit up and take notice when a standard may bear a major impact on earnings in either direction, or when balance sheets might show leverage where there was none before. Those kinds of standards happen, but infrequently – and while the FASB danced with the IASB during the 2007 through 2013 timeframe, little of FASB’s output rocked the world for investors. The influence of the FASB’s own “Private Company Council” (PCC) pervaded their projects in 2014 and 2015, resulting in numerous simplifications of standards, but little in the way of standards having a major impact on the basic financial statement package. Though the FASB issued seventeen Accounting Standards Updates (ASUs) in 2015, most of them were EITF consensuses or the result of simplification efforts.
Look at the FASB’s agenda, and you’ll see that 2016 might be a lot different. A new lease accounting standard is slated for release, albeit with long implementation fuse, and the FASB will be taking up pension and financial presentation topics for the first time in years. The pendulum seems to be swinging away from international convergence of standards and simplification, and towards more investor-useful endeavors. What follows is a recap of the 2015 output and a look at what might make investors sit up and take notice in 2016.