Draft-A-Palooza: Standard Setters Open The Spigot Wide: Over the last couple of years, there have been precious few new proposals issued by the Financial Accounting Standards Board. The SEC’s promotion of IFRS convergence has led the FASB to devote most of its gunpowder on projects leading to standards that are more synchronized with IASB reporting standards. The results of those effort so far: a few proposals that would modify large swaths of financial reporting, like lease accounting, financial instruments and revenue recognition - all of which are in various stages of revision. There just haven’t been many other major proposals pushed out by the two-headed standard-setting beast that is the FASB and the IASB. (Call it FIASB?) That is, there haven’t been very many until the last month. The FASB has issued exposure drafts that, if enacted, would have major effects on the accounting for investment properties, investment companies, and consolidations of variable interest entities (VIEs). For good measure, the twin boards released the rewritten revenue recognition proposal last week.
The PCAOB’s standard-setting efforts primarily affect auditors, but their recent proposals should interest the investing public at large - if they care at all about the quality of the financial reporting that they consume. Last summer’s proposal on putting more information in the audit report was but one example. Now the PCAOB is proposing disclosure of the names of audit engagement partners in SEC filings, and is also floating the idea of mandatory auditor rotation, in order to bring fresh views to the audit. This report summarizes the fresh batch of proposals from the FASB and the PCAOB, and examines their relevance to investors.