A proposal released by the Financial Accounting Standards Board tackles eight issues in cash flow reporting. The proposed Accounting Standards update provides guidance to reduce the diversity in practice in the Statement of Cash Flows.
The eight issues contained in the proposal, entitled “Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments,” were originally identified and considered by the FASB’s Emerging Issues Task Force, an advisory group to the FASB consisting of industry experts. The EITF found there was a lack of sufficient guidance, or that existing guidance was unclear, in the eight areas of cash flow reporting listed below. The proposed guidance represents the advisory group’s consensus position on these matters.
Eight issues addressed in the proposalKey points from the proposed guidance follow; refer to the proposal for complete details.
Significance of March 29 date, and FASB / SEC simplification effortsThe FASB seeks comment from its constituents, including preparers of financial statements, auditors, investors/other users of financial statements, and other interested parties, on particular questions outlined in its proposed amendments to cash flow reporting. Additional comments of a general nature, or on questions not raised by the FASB, are also welcomed by the accounting standard-setting board; the proposal carries a comment deadline of March 29.
The March 29 date may ring a bell to some accounting-standards and SEC reporting aficionados, as it represents the 10-year anniversary of a congressional hearing on simplifying and improving financial reporting. The hearing, entitled “Fostering Accuracy and Transparency in Financial Reporting,” was conducted on March 29, 2006 by the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the U.S. House of Representatives’ Committee on Financial Services, the Committee responsible for oversight of the SEC and, by extension, accounting standards adopted by the FASB as U.S. GAAP, since the SEC oversees the FASB. (Congress does not directly oversee the FASB, which is an independent standard-setter. Neutrality of FASB’s standard-setting process is engrained in its constitution and operating procedures.)
Witnesses testifying at the March 29, 2006 hearing included the leading lights of accounting standard-setting and financial reporting, bringing together (physically, if not necessarily always conceptually) the chairman of the FASB, the acting chairman of the Public Company Accounting Oversight Board, the acting chief accountant of the SEC, the president and CEO of the American Institute of CPAs, the president and CEO of Financial Executives International, the president of the Securities Industry Association, the senior vice president of the U.S. Chamber of Commerce, and the director of capital markets policy at the CFA Institute.
In the years since the March 29, 2006 hearing, various attempts were made in the House to pass legislation aimed at simplifying and improving financial reporting, such as the Promoting Transparency in Financial Reporting Act of 2009, which included such provisions as:
The Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Oversight Board shall annually provide oral testimony by their respective Chairpersons or a designee of the Chairperson, beginning in 2009, and for 5 years thereafter, to the Committee on Financial Services of the House of Representatives on their efforts to reduce the complexity in financial reporting to provide more accurate and clear financial information to investors, including:
Although various congressional attempts to direct the applicable federal agencies (SEC), quasi-federal agencies (PCAOB) and private sector standard-setters (FASB) did not pass the Senate or become law, there were subsequent attempts by Congress in which various points listed above were included in signed legislation, including the JOBS Act and, most recently, the Fixing America’s Surface Transportation (FAST) Act, as noted in How the FAST Act Will Impact Securities Laws.
The FASB and the SEC have issued numerous proposed and final simplifications and requests for comment. One of the more controversial proposals of late has been FASB’s proposed changes to its materiality standard (see our earlier post in October 2015), with the SEC’s Investor Advisory Committee taking the somewhat unusual step of sending a comment letter from the Committee to the FASB. (See SEC press release, “SEC Investor Advisory Committee Urges the Financial Accounting Standards Board to Reconsider, and if Appropriate, Repropose Amendments to the Core Financial Accounting Concept of Materiality.”)
More from FASBIn other FASB news, the Financial Accounting Foundation, parent organization of the FASB and Governmental Accounting Standards Board, announced on Friday that board member Daryl Buck will retire from the FASB board at the conclusion of his five-year term, in December 2016. Buck has brought extensive expertise to the Board in matters relating to private company accounting, and has served as the FASB board’s liaison to the Private Company Council (PCC), the advisory group which recommends simplifications and other improvements to financial reporting that can be elected by private companies as alternative treatments that still fall within U.S. Generally Accepted Accounting Principles (U.S. GAAP).
Also last week, the FASB released a proposal on pension and postretirement benefit accounting. The proposed Accounting Standards Update, entitled, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Changes to the Disclosure Requirements for Defined Benefit Plans,” carries a comment deadline of April 25.
Learn more about these and other accounting and auditing proposals on one of the MACPA’s upcoming webcasts, or by attending an upcoming town hall meeting / professional issues update featuring MACPA CEO Tom Hood. Also, check out the MACPA’s 2016 Business and Industry Conference taking place on May 13 at the Hilton Baltimore BWI Airport, featuring a keynote by Marc Greenberg, vice president of finance and strategy at Pixar Animation Studios.