Accounting Standard Setting in a Rapidly Evolving Business Environment: A Focus on the Timely Delivery of Investor Priorities
Feb. 14, 2023
One year ago, we issued a statement stressing the importance of the Financial Accounting Foundation (“FAF”) and Financial Accounting Standards Board’s (“FASB”) efforts to improve accounting standards and the standard-setting process, including the vital investor outreach performed through the FASB’s 2021 Agenda Consultation. Since then, the FASB’s technical and research agendas were reprioritized, largely to focus on investor and other stakeholder priorities identified through the agenda consultation process. Recently, the FASB has made progress on many reprioritized projects, such as disaggregation of income statement expenses; accounting for and disclosure of crypto assets; improvements, including further disaggregation, to income tax disclosures; and segment reporting. Completion of these and other reprioritized projects in a timely manner is critical to the quality of accounting standards and the resulting quality of financial reporting. As FASB standard-setting projects move forward, we believe there are continued opportunities for improvement to the standard-setting process, and that constructive collaboration by preparers, investors, auditors, and other stakeholders, with a focus on timely solutions that meet investor financial reporting needs, is key to the development of high-quality accounting standards for the benefit of the financial reporting system, investors, and issuers.
The rapid pace of change in today’s business and economic environment requires a thoughtful, yet timely, response by standard setters to improve the quality of financial accounting and reporting standards, thereby enhancing the usefulness of the financial information provided to investors. The FASB’s recent agenda reprioritization, however, is just one step in addressing such needs in a rapidly changing environment. Consistent with many projects on its reprioritized agenda, the FASB should continue to scope its standard-setting projects to allow for achievable standards updates to be finalized in the near term on topics that are of the highest priority to investors. The FASB, with the support of its stakeholders, should act with a renewed sense of focus and urgency in order to enhance its standard-setting process and produce timely, meaningful improvements to its standards.
Among the requirements for a standard-setting body under the federal securities laws, as enumerated by the Sarbanes-Oxley Act, the FASB must serve investors, protect the public interest, consider the need to keep accounting standards current in order to reflect changes in the business environment, have procedures to ensure prompt consideration of changes to accounting principles necessary to reflect emerging accounting issues and changing business practices, and consider the extent to which international convergence is appropriate in the public interest and for the protection of investors. Under current leadership, the FASB appears to have made certain notable improvements to its standard-setting process. In particular, the FASB has undertaken to scope its projects in a targeted way so that those projects might be completed in a more timely manner. Additionally, the FASB has continued to identify ways to engage more proactively with investors and other stakeholders to better understand the information needs of investors. However, more work remains to be done—including improved collaboration across the FAF and the FASB regarding additional process improvements needed to accomplish more timely standard setting in response to investor needs. To accomplish its mission of establishing and improving standards that foster decision-useful financial reporting for investors, it is critically important that the FASB, and the FAF Trustees in their oversight role, continue to enhance its process to improve standard-setting efficiency, effectiveness, and transparency.
While there are challenges inherent in producing high-quality standards in an environment of rapid change, the FASB should ensure not only that its process is robust but also that its process results in timely and efficient consideration of needed improvements to its accounting standards. In that regard, we appreciate that, in addition to soliciting stakeholder perspectives on the FASB’s agenda, the 2021 Agenda Consultation also sought feedback on potential improvements to the FASB’s standard-setting process. Respondents, including investors, auditors, and preparers, were generally supportive of process enhancements, including improvements to the understandability and navigability of the Codification, and to the FASB’s interpretive process. In particular, we think that a process that is focused on achievable, meaningful standard setting requires not only a consideration of investor and other stakeholder priorities when making agenda decisions, but also a clearly designed and achievable scope for each project, followed by timely execution so that the FASB can complete it in a reasonable amount of time before changes to the standards are overtaken by further developments in the marketplace or changes in the economy.
Large-scale projects that take too long to execute or that have lengthy or different implementation periods can delay the delivery to investors of decision-useful comparative information and inhibit investors’ ability to make efficient capital allocation decisions.
Producing Timely, High-Quality Accounting Standards Updates Responsive to Investor Priorities
We support the FASB in its 2022 reprioritization of its technical and research agendas in response to investor and other stakeholder priorities, and appreciate efforts to date by the FASB to increase the transparency provided to investors and other stakeholders throughout its agenda prioritization process.
As noted in the 2021 FASB Agenda Consultation Report, the top priority topics identified by investors are as follows:
- Disaggregation of Financial Reporting Information;
- Improvements to the Statement of Cash Flows;
- Environmental, Social, and Governance (“ESG”)-Related Transactions and Disclosures;
- Intangible Assets;
- Financial Key Performance Indicators and Non-GAAP Metrics;
- Digital Assets; and
- Enhanced Income Tax Disclosures.
These seven topics are reflected across a number of projects in the FASB’s technical or research agendas. Additionally, the FASB removed several projects from its agenda—such as accounting for goodwill—in part because investor feedback made it plain that the FASB should focus its time and resources on other, critical areas.
As a result, we believe that the FASB’s updated agenda now better reflects a focus on investor and other stakeholder priorities in meaningful and achievable standard-setting projects. However, the proof is in the doing. The FASB should now execute on those stated priorities in an effective, efficient manner to produce timely, high-quality standards updates. As noted above, this will require the FASB to carefully design and execute on the scope of its projects. It is also of critical importance that preparers, auditors, and other stakeholders focus on providing collaborative feedback to the FASB on cost-effective solutions that meet investors’ needs for improved financial information.
In this regard, although we acknowledge that the costs of providing additional information to investors are a component of the FASB’s analysis of any proposed standard, standard setting should be focused on the information needs of investors, and implementation costs alone should not drive standard-setting priorities or process.
We also note the importance of, and benefits that may be derived from, continued information-sharing between the FASB and the International Accounting Standards Board on areas of mutual interest, including those related to the impacts of changes in the global business and economic environment, in the interests of convergence wherever appropriate.
Given the clear direction from stakeholders, and the need to stay in lockstep with the rapidly changing business environment, the FASB should act deftly while ensuring it maintains a rigorous due process responsive to economic developments—including new and emerging investment products, marketplace changes, and investor demands.
We appreciate the efforts of those investors and other stakeholders across the financial reporting system who participate in the accounting standard-setting process with a focus on providing investors with financial information that is useful in making capital allocation decisions. We are also grateful for the recent efforts of the FASB in prioritizing projects aimed at achieving our common goal of providing investors with more decision-useful financial information.
We look forward to working closely with the FASB and the FAF Trustees as they continue to improve the standard-setting process and resulting accounting standards with a goal of ensuring prompt development of meaningful improvements to standards that result in more transparent and decision-useful information being provided to investors. As the FASB issues proposals coming out of these priorities, we encourage all stakeholders to likewise engage with the FASB in a manner to support its prompt consideration of that feedback and efficient completion of these important projects.
 This statement is provided in the author’s official capacity as the Commission’s Chief Accountant but does not necessarily reflect the views of the Commission, Commissioners, or other members of the staff. This statement is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person. “Our” and “we” are used throughout this statement to refer to the staff of the Office of the Chief Accountant (“OCA”).
 See Paul Munter, Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards (Feb. 22, 2022), available at https://www.sec.gov/news/statement/munter-statement-fasb-agenda-consultation-02222022.
 General purpose financial reporting is intended to provide information useful to capital allocation decisions of investors, lenders, and other creditors. This statement refers collectively to these capital allocators as investors.
 SeeFASB,Invitation to Comment—Agenda Consultation(Jun. 24, 2021),available at https://fasb.org/Page/Document?pdf=ITC-Agenda_Consultation.pdf; FASB, 2021 FASB Agenda Consultation Report (Jun. 29, 2022), available at https://fasb.org/Page/ShowPdf?path=2021%20FASB%20Agenda%20Consultation%20Report.pdf.
 15 U.S.C. §77s(b)(1); see alsoSEC,Policy Statement: Reaffirming the Status of the FASB as a Designated Private-Sector Standard Setter, Release No. 33-8221 (Apr. 25, 2003) [68 FR 23333 (May 1, 2003)],available at https://www.sec.gov/rules/policy/33-8221.htm.
 See 2021 FASB Agenda Consultation Report, supra note 4.
 See id.
 In this regard, we note the potentially important role of the Emerging Issues Task Force and the FASB’s advisory groups in the FASB’s standard-setting process. There may be opportunities to further enhance the ability of the FASB to address priority issues in a timely manner by improving the processes through which these groups participate in the FASB standard-setting process.
 See 2021 FASB Agenda Consultation Report, supra note 4.
 See id.