The FASB’s 2016 Trail – And Where It’s Heading This Year : In an increasingly non-GAAP investing world, it’s often forgotten that standards come into being to solve a reporting problem – be it a total lack of financial information, inconsistent financial information or misrepresented financial information. Non-GAAP presentations ignore the fact that standards make it possible to make companies comparable. Costs, and the replenishing power of profits, can be ignored only for so long; they’re hard economic tenets to ignore forever. At the same time, non-GAAP presentations of economics are getting to be a hard habit to break. Nevertheless, the FASB soldiers on in its pursuit of reporting standards. If nothing else, they provide a “standardized” starting point for their own ideas about how to measure performance.
Investors sit up and take notice when a standard has a favorable or unfavorable impact on earnings, or when balance sheets might show leverage where none existed before. Those standards happen, but rarely – although one of these emerged in 2016. (Lease accounting.) After an SEC-led frittering-away of time and resources between 2007 to 2013, the FASB is returning more to form in recent years. It’s issuing more frequent amendments to the Accounting Standards Codification, ones that are smaller in scope than the kind of pronouncements they issued prior to the start of convergence efforts. Many of these might be termed “remedial GAAP:” they’re the result of the influence of the FASB’s own “Private Company Council” (PCC) and rather than breaking new ground, they’re simplifications of existing standards.
In 2016, the pendulum swung away from international convergence of standards but towards simplification, rather than more investor-useful endeavors. The continuing dull roar of non-GAAP earnings presentations and their protestations might move the FASB to finally do something more dramatic about performance reporting standards in 2017. What follows is a recap of the 2016 output and a look at what shape standard setting efforts might take in 2017.
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