Remarks of Russell G. Golden Chairman, Financial Accounting Standards Board
AICPA Conference on Current SEC & PCAOB Developments
December 5, 2017
Good morning and thank you for making time to attend this conference
during a period of significant change in financial reporting. Whether
it's revenue recognition, credit losses, leases, or hedging, I'm sure it
impacts most of you here.
We've used all or most of them in preparation for the revenue
recognition, credit losses, leases, and hedging standards that many of
you are implementing now.
We've issued a lot of new standards in recent years. I would like to
thank the AICPA for its help in assisting both public and private
companies as they implement these standards. I believe the Institute's
efforts will help ensure a smooth transition for all.
As for the future, when we asked you what we should do next, a couple of
respondents asked us to take a vacation. Well, I only get a few weeks,
but it was clear that stakeholders would like the Board to minimize
change in the near future. In 2018, we will fully focus our attention
to help you implement what's already out there—as well as looking at how
we can help preparers and auditors reduce cost and uncertainty while
providing investors more and better information.
We think of it as the "Kaizen" approach to standard setting. Kaizen is
the Japanese word meaning "change for the better." It describes a
process of continuous, incremental improvements as opposed to sweeping
At the FASB, continuous improvement is the foundation of our process. It
means ensuring that standards provide investors with better information
at the right time. It means educating stakeholders and making clear
"what we meant" when we issued a standard to reduce uncertainty around
it. And it means continually communicating with stakeholders throughout
the process to better understand the costs of a standard—which helps us
make better decisions. When we do that, we believe all of our
We do these things at every level of the standard-setting process. It
begins when we consider what issues to add to our agenda and it
continues even after a standard has been implemented.
Using examples, I'll look at how we've executed continuous improvement in 2017. Most of our efforts focused on successful implementation—particularly our major new standards on revenue recognition, credit losses, leases, and hedging. I'll then talk about the outcome of our agenda consultation
project and why we decided what projects to add. But perhaps more
importantly, I'll talk about what we did not add to our future agenda.
And finally, I'll discuss how we plan to continue this approach to
standards in 2018 and beyond.
In the spirit of full disclosure, I should note that I'll be providing a
big-picture overview of our activities. As conference veterans know, I
am just the warm-up act for the one you really should listen to, FASB
Technical Director Susan Cosper, who will provide a more detailed,
technical look at our standards and projects. In other words, she'll
tell you what you really came here to learn, so come back after the
I also want to 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.
Let's start with how the FASB continually supported implementation of our standards—a top priority for the Board in 2017 and beyond.
We view quality implementation as critical to the overall success of a
project. The greatest standard in the world won't improve financial
reporting if it can't be reasonably applied or understood by preparers,
auditors, or users.
Over the years, we've developed and refined different resources to help our stakeholders with implementation. They include:
We've also been proactive in educating investors
and other users about the impact of the new revenue recognition
standard on financial statements. Earlier this year, we launched a podcast series
with FASB Member Marc Siegel that focuses on the impact of revenue
recognition on various industries. We plan to do something similar for
credit losses, leases, and hedging.
They're all helpful resources—but until very recently, they were
scattered throughout our website and, therefore, were difficult to
navigate. To address this, we created an implementation web portal that brings together all the implementation resources on a given standard.
It's a good example of a small but incremental change that's made a big
difference. Since its launch on September 13th, the implementation web
portal has received more than 15,000 page views. Stakeholders have told
us it's making the job of finding information much easier.
And it all started based on a suggestion from one of our advisory groups.
We also continue to address technical questions submitted by our stakeholders on all projects. Credit losses is a good example. Stakeholders have inquired about areas where we've made changes.
Stakeholders have also expressed concerns about how the credit losses
standard will be audited and what its impact may be on capital reserve
requirements. For that reason, we continue to meet with
regulators—including banking regulators—to discuss issues that surface.
We share questions we receive—as well as the answers to those
questions—with these agencies to ensure interpretations are consistent
with the Board's intent. And the FASB staff provides training to agency
examiners on credit losses on a periodic basis. The FASB remains
committed to continuing to work with the SEC, PCAOB, and banking
regulators to ensure a smooth and timely adoption.
We've also been proactively addressing implementation issues about the new leases standard. Last week, we voted
to move forward with several changes expected to reduce unnecessary
cost—without compromising the ultimate quality of information provided
At that meeting, we directed the FASB staff to draft a proposed
Accounting Standards Update that would simplify transition requirements
and, for lessors, provide a practical expedient for the separation of
nonlease components from lease components.
We also voted to proceed with a final standard that reduces a lessee's
transition cost for historical land easements. Land easements—or rights
of way—represent the right to use, access, or cross another entity's
land for a specified purpose. We believe these changes will help ensure a
timely adoption of our leases standard.
These are good examples of the importance of continuously engaging with
stakeholders, even after a final standard has been issued. It helps you
implement the standards and it can make the FASB better informed for
future standard-setting activities.
Now, I'm aware that some have viewed our efforts to reduce cost or
complexity as compromising the quality of information provided to
investors. I believe the opposite to be true—unnecessary cost or
complexity degrades quality for everyone in our financial system,
including financial statement users.
In fact, I have yet to meet a single investor who wants companies that they invest in to incur unnecessary cost. Preparers don't have the time and resources to deal with it, and you shouldn't have to.
Reducing unnecessary complexity and cost also drove the development of one of our most popular standards. In August, we issued our final standard on derivatives and hedging.
That standard refines and expands hedging for both financial and
commodity risks. It also presents the economic results in a more
transparent way, both on the face of the financial statements and in the
footnotes, for investors and analysts.
This standard is as close as we've ever come to making everyone happy.
Companies and investors alike have been extremely supportive of it. In
fact, when we voted to issue it last summer, one headline called it
"Christmas in June for Derivatives Users." And many companies have
decided to early adopt.
I attribute that success to our staff's efforts to proactively solicit
views from all our stakeholders—including those who use and prepare
public company, private company, and not-for-profit financial
reports—throughout the process. Based on responses to our 2016 Exposure
Draft, the Board considered comment letters, held numerous conference
calls with investors and other users of financial statements, and hosted
two public roundtables, which included preparers, auditors, regulators,
and other perspectives. The FASB also met with our Private Company
Council to discuss private company hedge documentation issues.
The process was a model for how those views help us better understand the costs and benefits of our decisions.
And we're still improving the standard by supporting your implementation
efforts. Questions about hedging have tended to focus on specific
issues related to transition or the new methodologies we added to expand
the guidance, such as the last-of-layer method and hedging the
specified components in a nonfinancial contract.
I'd also note that we're also evaluating feedback on technical
Codification improvements to another financial instruments standard—classification and measurement—which will result in incremental improvements without a significant impact on practice.
As you can see, much of our focus has been on implementation. But it's
only one part of the process toward continuous improvement. That's
because high-quality accounting standards begin with a strong technical agenda.
To develop the right accounting solutions, the FASB must first identify
the right accounting issues—issues that can, in fact, be addressed
through standard setting. And that means engaging with stakeholders to
understand their priorities, experiences, and concerns.
Continuous improvement also means improving how we set our agenda. In 2016, we issued an Invitation to Comment
which presented stakeholders with a list of potential financial
reporting issues, and asked them to weigh in on what issues they
considered priorities. We also asked stakeholders if they thought the
issues were problems that should be addressed through standard setting
and, if so, potential paths forward.
This was the first time we had done this as part of our agenda
consultation process, and we received a lot of valuable feedback. And
last September, the FASB made its final decisions on what projects to add—and not add—to our technical agenda.
First, we added a project on distinguishing liabilities and equity
that would improve understandability and reduce complexity—without
sacrificing the relevance of information provided to financial statement
users—with a focus on indexation and settlement, convertible debt,
disclosures, and earnings per share. As a lot of you know, accounting in
these areas is very difficult to apply and get right. In fact, this
area has had the greatest number of restatements in recent years. When
it's completed, I believe this project will reduce complexity and cost.
Second, we added a component of the FASB's financial performance reporting research project focused on the disaggregation of performance reporting by function and nature.
And, third, we added a narrow-scope project on segment reporting
intended to improve aggregation criteria and segment disclosures. When
our work on financial performance reporting and segments is completed, I
believe investors will have greater transparency into the operations of
We selected these issues for a few reasons. One, because they were
identified as priorities by diverse stakeholders. Two, because the Board
felt that the issues raised could be successfully addressed through
standard-setting solutions. And, three, because we could complete them
with existing resources.
That said, we also decided not to add certain projects to the agenda.
Why did some issues not make the cut? Well, they were all areas where
financial accounting could be improved—but in some cases, there are no
viable solutions. In other cases, they just were not priorities.
Let's be realistic. We don't have unlimited resources—including the
resource of time—needed to address each and every issue well. And based
on your responses to our Invitation to Comment, you don't either—you
can only implement so many standards at one time.
Part of our job is positioning organizations like yours for a successful
and smooth transition to new standards. And that means making hard but
necessary choices. We're striving to improve how we manage the pace of
change by managing it at the beginning of the process, not the end.
Before I move on, please be assured that our three new agenda projects
will require time to complete. And, even then, final standards won't be
effective for some time thereafter.
Now I'll turn my attention to our priorities for 2018.
In 2018, our first priority will be to monitor and assist in your implementation efforts. Our second priority will be to complete one more significant project on our agenda—one that improves long-duration insurance contracts.
This project provides another good example of how outreach with
stakeholders helps us better understand the costs and benefits of a
standard—and, in turn, make better decisions.
Ten years ago, as part of our work with the International Accounting
Standards Board, we considered a complete overhaul of the accounting
model used by life insurers for long-duration products, including life
insurance and annuities.
However, after extensive research, judgment, and feedback from investors
and insurers, we dropped the overhaul in favor of making targeted
improvements to the existing insurance model. We've made substantial
progress in our redeliberations in this area, and we aim to issue a
final standard next year.
By the way—most of you won't have to implement that one, unless you
write long-duration insurance contracts. But we may be reaching out for
your input on issues related to liabilities and equity, segments, or
financial performance reporting next year.
In 2018, we also expect to complete work on our disclosure framework project.
We'll finalize decisions on the Board's decision process, which
ensures that the framework promotes consistent decisions by the FASB
about disclosure requirements—while also guiding reporting organizations
in making disclosure decisions.
And, we expect to redeliberate our topic disclosure reviews on defined
benefit plans, fair value measurement, government assistance, income
taxes, and inventory disclosures.
Finally, we hope to make further progress on simplifying GAAP and on our conceptual framework projects.
My time is up, so I'll leave you with this. Frankenstein author
Mary Shelley once said, "Nothing is so painful to the human mind as a
great and sudden change." That's probably more true for us accountants
than for anyone else.
Over the past few years, the FASB has thrown a lot of change your way.
We know that. We are working to ease the transition of that change by
supporting your implementation of revenue recognition, credit losses,
leases, and hedging. We've made more resources available and stand
ready to address your questions as they arise—before and after the
effective dates. I urge you to visit our implementation web portal to
see the resources that are available to you.
We also applied and will continue to apply an approach of smaller steps
toward continuous improvement to our future agenda decisions. By first
defining the problems we want to solve, within the context of our
stakeholders' priorities and our own resources, we made wiser decisions
about what issues we should—and should not—address.
And as we finalize decisions on our disclosure framework and
long-duration insurance contracts projects in 2018, we pledge to
continue our work on behalf of high-quality financial reporting.
As always, your input helps us make better decisions at all levels of
the process. We thank you for your involvement in our activities in
2017. Your continued engagement in our process will help make 2018
another year of continual improvement.