FASB Targets New Long-Term Agenda, Rules on Expense Disclosure in 2022

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The Financial Accounting Standards Board plans to propose new rules on how companies disclose expenses and make key changes to its long-term agenda this year, including exploring potential standards on cryptocurrencies and transactions linked to sustainability issues.

2022 marks a pivotal year in which the U.S. accounting standard setter could overhaul its priorities as part of a so-called “agenda consultation.” The consultation, which began last year, was the first in five years.

The FASB in recent months received more than 500 letters in which companies, investors, academics and other stakeholders shared their opinions on what it should focus on. Many finance executives want the FASB to write rules on how to account for cryptocurrency assets—a sentiment echoed by investors—and on financial instruments tied to environmental, social and governance issues. In both cases, there are currently no specific rules that companies can follow.

While the SEC hasn’t announced major actions against big crypto exchanges, the commission has threatened to sue companies offering crypto lending. WSJ’s Dion Rabouin explains why this one part of the crypto market has drawn such a strong reaction. Photo: Mark Lennihan/Associated Press

“We sometimes accelerate projects, particularly when there’s significant investor interest in an emerging issue,” FASB Chair Richard Jones said.

Mr. Jones last month said the FASB would conduct research on how to account for and disclose cryptocurrencies and ESG-related financial contracts. It will then decide whether to add these projects to a technical agenda it uses to determine its standard-setting priorities.

“There’s a fair degree of need for accounting guidance around both issues,” said

Robert Herz,

a former FASB chair. “My hope would be that they could move them expeditiously from the research agenda to actual standard setting.”

The FASB also continues to advance its existing projects on accounting for goodwill and disclosure of expenses. Both could have a major impact on companies’ financial reporting.

The standard setter in the first half of this year plans to issue a proposal that would force companies to break out big-ticket expenses incurred by different business divisions, followed by a final rule, potentially before year-end, Mr. Jones said. Such expenses are usually part of what companies report as segment profits or losses. Senior executives already get to see this information, but don’t need to share it with investors.

If completed, the project could mark a win for investors. Many of them for years have pushed for a greater breakdown of companies’ expenses and other financial information, which can help shareholders forecast revenue and margins when valuing a business. Companies often resist disclosing detailed information on the performance of their business segments for fear of revealing too much to competitors.

The project has a better shot at producing a new rule in 2022 than some of the FASB’s other signature projects, including one on how companies account for goodwill, a contentious issue it added to its agenda in 2018, Mr. Jones said.

Under current rules, an acquiring business must measure the fair value of its reporting units annually and, if that figure is less than the amount recorded on the books, reduce the value of the goodwill. Many businesses consider the current model costly and subjective.

The FASB is leaning toward adding amortization, a method it eliminated in 2001, to the existing goodwill model. Companies would have to write down a set portion of goodwill annually over a set period. The International Accounting Standards Board, which sets standards for many jurisdictions outside the U.S., is considering sticking to the existing impairment model, though with potential modifications.

It is unclear whether changes to goodwill accounting make it to the proposal stage this year, as the FASB plans to align with the IASB on timing. The boards are sharing information on the progress of their goodwill projects, Mr. Jones said.

Eighty-nine percent of 700 global investors and analysts, or 623, in a recent survey said the FASB and IASB should follow the same approach in accounting for goodwill, according to the CFA Institute, which represents investment professionals. Mr. Jones said the FASB will factor these views into its cost-benefit analysis.

Investors continue to push the FASB to better incorporate their views into the standard-setting process. The CFA Institute is urging the organization to work on providing greater disclosure for investors in areas such as intangible assets and segment reporting and not focus resources on providing guidance that could eliminate that information. For example, the amortization of goodwill, which the FASB is considering reviving, isn’t useful for conducting investment analysis, said Sandy Peters, senior head of financial reporting advocacy at the CFA Institute.

Mr. Jones said he would continue to evaluate the effectiveness of recently-implemented rules, including on leases, revenue recognition and credit losses. The procedure, which is a standard one for the FASB, is expected to include reviewing how private companies cope with new leasing rules that public companies adopted in 2019 as well as finishing a proposed rule that would force businesses to give more information about certain debt restructurings.

Companies can also expect a new rule requiring them to provide the key terms and the size of their supply-chain financing arrangements, a move to give investors more clarity on firms’ use of the short-term borrowing tool. Mr. Jones said he expects the board to approve the rule in the first half of the year.

The FASB enters the new year on more stable footing than other standard-setters such as the Public Company Accounting Oversight Board, the IASB and the newly-formed International Sustainability Standards Board, which are undergoing major leadership transitions. Andreas Barckow is about six months into running the IASB, while Emmanuel Faber on Jan. 1 started as head of the ISSB. Erica Y. Williams, the recently appointed chair of the PCAOB, hasn’t been sworn in yet.

Write to Mark Maurer at [email protected]

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