New York, New York
May 2, 2019
Next month will usher in my last full year as FASB chairman. It will mark the end of a decade on the Board, and a sixteen-year career with the organization.
It´s been an honor to serve on the FASB. And I´ve learned a lot, due in no small part to the people I´ve met and worked with along the way. They include my colleagues on the Board, the outstanding FASB staff—and stakeholders like you, who follow our activities, share your input, and even listen to my speeches.
For all the above—I thank you.
I became chairman in 2013, which also marked the fortieth anniversary of the FASB. We celebrated that milestone at a "FASB at 40" event in New York City.
Those in attendance included five former chairs of the FASB—Don Kirk, Denny Beresford, Ed Jenkins, Bob Herz, and Leslie Seidman.
Pretty illustrious company! And I got to stand up in front of them and deliver the speech that closed the event. It my first major address as chairman.
I thought it went well.
And then, a few days later, the conference survey results rolled in. Event feedback was almost universally positive.
One person had this to say—to paraphrase:
"The panels, especially the first one chaired by Jim Leisenring, were the best part. The closing presentation was the weaker part."
Guess who delivered the closing presentation?
Now the Big Four partner who submitted that comment—who shall remain nameless—has since retired, and no, I had nothing to do with that.
Jim Leisenring, on the other, has NOT retired. And probably never will. But he´s not speaking here today—I am. So keep your expectations in check.
In that first speech, I talked about the challenges FASB faced in 2013. Specifically, how to successfully improve financial reporting for U.S. capital markets—and promote and enhance the quality, comparability, and consistency of international financial reporting.
I believed—and still do—that more comparable global accounting standards help reduce complexity and costs in financial reporting. Costs that are often borne by U.S. multinational corporations.
But by 2013, we´d come to realize that the ideal of single set high-quality global accounting standards was just that—an ideal. Different starting points, different cultures, and different legal systems made bilateral convergence impossible to achieve.
Today, I´ll discuss how I wanted to address that challenge, what we accomplished, and what´s left to be done.
But first, let me pause here and remind you that official positions of the FASB are reached only after extensive due process and deliberations. In other words, what I am about to say are my views and only my views.
When I became chairman in 2013, we had put in more than a decade of work with the International Accounting Standards Board, or IASB.
Starting in 2002, the FASB and the IASB agreed to focus their resources on areas in GAAP and International Financial Reporting Standards, or IFRS, that were most in need of improvement.
And we succeeded in key areas. Business combinations, noncontrolling interests, fair value measurements, borrowing costs, segment reporting, stock compensation, and nonmonetary exchanges were just some of the areas where we improved and aligned standards.
Our partnership produced many successes. And it challenged us both to set better standards.
But we still had to complete our work on revenue recognition, leases, credit losses, and insurance. And we had to carve out a new role in international standard setting—one that would also serve the best interests of U.S. capital market participants.
Our most notable achievement in both areas occurred in May 2014, when we issued our joint standard on revenue recognition.
During the course of that project, the FASB and the IASB issued multiple Exposure Drafts and conducted hundreds of meetings with stakeholders across the globe. We worked tirelessly to ensure the standard would be as useful and as operable as possible.
After the standard was issued, we even created a joint Transition Resource Group, or TRG, to monitor and address implementation issues in this important area of financial reporting.
I should add here that what we learned from the TRG helped us improve how we support implementation for other major FASB standards. And it served as a model for the FASB´s credit losses TRG, formed a few years later.
In the end, I believe that the revenue recognition standard achieved its objective. It simplified GAAP and replaced numerous, disparate pieces of industry-specific guidance with a more consistent framework—a framework that ensured greater comparability in financial reporting across different industries.
It improved IFRS by replacing two main revenue recognition standards that had limited implementation guidance and were difficult to understand and apply.
And it improved both sets of standards by requiring enhanced disclosures that gave investors and other users a better understanding of the economics behind the numbers.
U.S. public companies implemented the standard last year; private companies, this year. Transition has gone smoothly, and costs have been lower than expected. But we continue to monitor implementation and stand ready to address any issues that may arise.
Two years later, in 2016, the FASB and the IASB issued our standards on leases.
During that project, the FASB and the IASB both agreed that leases belong on the balance sheet. We agreed on the definition of leases and reached consistent conclusions in other important areas.
But the Boards chose different approaches to expense recognition.
The FASB retained our current expense approach, for two reasons. First, because we believed it would more appropriately reflect the economics of lease transactions. Second, because U.S. stakeholders told us it is more operational.
The IASB, on the other hand, reverted to the approach in our original joint Exposure Draft that front-loads expenses by the lessee for all lease contracts. One that essentially treats all leases primarily as financing transactions.
Despite our differences, the outcome of our standards was substantially the same. Both have resulted in more faithful representations of leasing activities. Both require organizations that lease assets to recognize, on the balance sheet, the assets and liabilities created by those leases. And both require more disclosures that give investors better information about these transactions.
U.S. public companies began to apply the standard this year. While we didn´t create a TRG for leases—whose changes were far less sweeping than revenue recognition—we did make narrow-scope improvements to address issues raised by our stakeholders. And continue to monitor implementation progress.
Next, I´ll turn my attention to our work on a standard you may have heard about recently—credit losses. Better know these days as "CECL."
As with leases, the FASB and the IASB agreed on objectives but disagreed on approaches. We agreed that we needed a more forward-looking model. But we disagreed on how to get there—largely because of what we learned from U.S. stakeholders.
Prior to finalizing our respective standards, the FASB worked with the IASB to develop a so-called "three-bucket" model for recognizing expected losses. That model introduced a two-measurement objective.
But our outreach with U.S. preparers, auditors, investors, and regulators made it clear that the three-bucket approach would be complex, ambiguous, and difficult to apply.
We met with hundreds of financial statement users, preparers, regulators—and financial institutions. Almost all agreed the incurred loss model was a problem.
But our analysis showed that the IASB approach would have been too costly for the U.S. financial reporting system.
On the bright side, our work on the "three-bucket" model challenged us to develop a better model for U.S. transactions. As a result, we introduced a simpler and—we believe—a more informative model for reporting current expected credit losses—CECL.
We continue to believe that the CECL model best serves the interests of U.S. investors—and that it better reflects, in a timelier fashion, the credit risks of loans on an institution´s balance sheet.
Our credit losses TRG has helped us understand and address implementation issues before the standard goes into effect next year. We continue to monitor and respond to implementation questions. And we continue to work with the SEC and banking regulators to ensure financial institutions of all sizes can make a successful transition.
Now on to insurance. By 2013, it had become clear that the FASB and the IASB disagreed on several fundamental issues in this area. The biggest obstacle was our different starting points.
When we embarked on this joint project, the IASB did not have a measurement standard for insurance. The FASB, on the other hand, had extensive GAAP guidance in this area.
Initially, the FASB and IASB set out to overhaul accounting for all insurance contracts.
But when we issued our proposed overhaul, U.S. stakeholders—especially investors—told us there was no significant need for fundamental change to GAAP guidance for short-duration contracts. So we decided to change course and focus on making targeted changes to existing GAAP.
In 2015, we issued improved disclosure requirements for short-duration insurance contracts. And last year, the FASB issued a new standard for insurance companies that issue long-duration contracts, such as life insurance.
I´m proud of what we accomplished in those joint projects. I´m also proud of our success in forging a new model for how we support the goal of more comparable, high-quality accounting standards worldwide.
We did—and are doing—it in three ways:
The FASB´s primary objective is to develop and improve GAAP for those who use it, both within and outside of the United States.
But we´ve made it our practice to consider opportunities to align with IFRS when possible. It´s now embedded in our process.
And we keep the lines of communications open with the IASB. We are in constant contact with IASB members and staff about projects on their research agenda. And we each share our research activities to see if we can continue progress toward improved, aligned solutions.
For example, during the FASB´s agenda consultation project a few years ago, we issued an Invitation to Comment seeking stakeholder input on potential new technical projects. As part of that process, we asked stakeholders to weigh in on the IASB´s solutions on pensions and intangible assets—and whether they thought those solutions might work in the United States.
We continue to learn from each other. Later this year, the FASB and the IASB will have another joint meeting in London to discuss common projects.
Over the past five years, we´ve also helped improve IFRS through our membership in the Accounting Standards Advisory Forum, or ASAF.
The ASAF was created by the IFRS Foundation in 2014. Its purpose is to advise the IASB as it develops IFRS. The FASB serves on the ASAF with representatives of other national standard-setting boards. At ASAF meetings, we share insights with the IASB on its projects and other financial reporting issues.
The FASB´s participation on the ASAF is an important opportunity to represent U.S. interests in the IASB´s standard-setting process. It´s proved to be yet another valuable opportunity to work together with other standard setters on issues of common interest. And it helps all of us continue the process of improving GAAP, IFRS, and other national standards.
In addition to ASAF meetings, we also meet individually with standard setters from Canada, Japan, Italy, China, Korea, Australia, France, the UK, and other nations to exchange ideas on improving our respective standards. This process also helped promote the broader flow of information and ideas that mutually inform our thinking. And to contribute to an environment that will foster greater alignment of standards across the globe.
In 2020, we will host a meeting of the International Forum of Accounting Standard Setters, or IFASS, in Washington, DC. IFASS is a group of national accounting standard setters from around the world, plus other organizations closely involved in financial reporting issues.
These relationships are critical to developing better and more comparable standards across the globe. I´m honored to play a role in helping to strengthen them.
So what´s left for the FASB to do on the international front?
Plenty. But, above all, to keep making progress.
I think the FASB should continue to engage with stakeholders—in the United States and abroad—to make GAAP the very best it can be for those who use and apply it.
I think the FASB should continue to work with the IASB, our strongest ally in the financial reporting space. We should continue to share our research and potential solutions to standard-setting problems.
I think we should follow the IASB´s lead and remain focused on improving the financial statement. And leave sustainability reporting and other performance metrics—however important they may be—to other experts.
And I think the FASB should to continue to build its relationships with national standard setters, and to share research and potential solutions on issues of common interest.
But most of all, I think the FASB should continue to actively engage you, our stakeholders, in the standard-setting process.
I ended my first speech as FASB chairman with the hope that, when my term was up, GAAP and IFRS would be closer in key areas than they were in 2013. I believe, with your support, we achieved that.
Because no matter who´s on the Board, the FASB needs YOU to continue to share your input. You make standards work, now and for the future. And that´s one thing that will never change.