From the Chair:
By Russell G. Golden, FASB Chair

How We Set Standards for All Stakeholders

Sometimes, interest in how "big ticket" projects (such as Revenue Recognition, Leases, and Credit Losses) affect large public companies overshadows our work on issues that affect other types of organizations. While these issues may not grab as many headlines, the Board devotes substantial time to their consideration.

I would like to shine a light on how the FASB addresses financial accounting and reporting issues for not-for-profit organizations, private companies, and employee benefit plans.
In this column, I would like to shine a light on how the FASB addresses financial accounting and reporting issues for not-for-profit organizations, private companies, and employee benefit plans.

Our first step is to identify the differences amongst diverse types of organizations. Experience has taught us that the exact same solution might not work for each type of organization—and in some cases it makes more sense to offer alternative accounting solutions.

But it's not always easy. As we learned when working toward international convergence, sometimes differences across nations exist, and sometimes they do not. The same goes for differences between types of organizations.
If this sounds like a balancing act, it is—one that requires listening, analysis, and outreach to be successful.

The Not-for-Profit Advisory Committee (NAC) and the Private Company Council (PCC) are both helping us in this area. The NAC helps us understand where differences exist in the not-for-profit sector. And the PCC helps us understand critical financial reporting issues faced by private companies and to identify solutions.

For example, in the area of not-for-profits, stakeholders (including the NAC) have shared ideas on improving how not-for-profits communicate their financial performance and condition, while also reducing certain costs and complexities in preparing financial statements.

We responded by adding a project to our agenda. As a result of that project, we soon will issue a standard that simplifies and improves how a not-for-profit organization classifies its net assets and the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. (An article about the forthcoming standard appears in this issue of the FASB Outlook.)

During the course of the project, stakeholders strongly supported consistency in how not-for-profits, public companies, and private companies present cash flows. Therefore, the new standard will continue to provide not-for-profits a choice of using a direct or indirect method of reporting operating cash flows.

The goal is for not-for-profits to provide more relevant information about their resources and the changes in those resources to their donors, grantors, creditors, and other users.
We believe that our final standard will simplify the face of the financial statements and enhance the disclosures in the notes. The goal is for not-for-profits to provide more relevant information about their resources and the changes in those resources to their donors, grantors, creditors, and other users.

Another area that affects not-for-profits is our new project on Revenue Recognition of Grants and Similar Contracts. The goal of that project, which focuses on grants from both governmental and other sources (such as foundations), is to clarify and improve the current guidance in that area.

At the same time, we have been making substantial progress in addressing issues identified by private company stakeholders and the PCC.

Since its founding in 2012, the PCC has succeeded in identifying solutions to existing accounting problems such as interest rate swaps, goodwill, variable interest entities, common control leases, and identifiable intangible assets. Now entering its second phase, the PCC has greater focus on proactively addressing private company issues as part of the standard-setting process.

For example, based on our work with the PCC, we issued a standard in March that makes it easier for all organizations to classify a share-based payment award when minimum tax withholding is involved. To further reduce complexity for private companies, we allowed private companies another pass at using intrinsic value to measure an award.

We are also taking the same approach with our research project on Applying Variable Interest Entity Guidance to Entities under Common Control, which focuses on other common control arrangements, such as those between brother-sister operating companies.

Finally, in the area of employee benefit plans, the FASB is looking to reduce complexity. We are approaching this project in two waves.

The first wave was completed in July 2015, when we issued a standard that reduces cost and complexity for employee benefit plans when preparing their financial statements, while maintaining or improving the usefulness of the information provided to their users. The Board worked extensively with experts in benefit plan accounting to identify opportunities for improvement.
We invite private companies, small businesses, not-for-profits, and employee benefit plans to join us in this "cultural evolution" by providing us with input on areas that affect them.

As a part of the second wave, we currently are working on a proposal to improve the reporting by an employee benefit plan for its interest in a master trust. A master trust is a trust in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held. Because many employee benefit plans hold investments in master trusts, some stakeholders have said that master trust disclosures is an area in which standard setting is needed.

Our approach to this work illustrates a shift in how we think about accounting issues that affect a large array of organizations or just one type of organization. It also demonstrates the importance of quality stakeholder feedback on our ability to make sound decisions about when accounting differences are appropriate.

For this reason, we invite private companies, small businesses, not-for-profits, and employee benefit plans to join us in this "cultural evolution" by providing us with input on areas that affect them. Working together, we can continue to foster financial reporting excellence that makes financial reporting more relevant for your financial statement users—and our entire universe of stakeholders.