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FASB standard setting—Your cheat sheet to what's ahead in GAAP · PwC's accounting podcast

• 0:02
  SPEAKER_02: Hello, and welcome to PwC's Accounting Podcast.
• 0:12
  SPEAKER_02: Today we're covering the latest FASB developments.
• 0:15
  SPEAKER_02: While relatively few accounting standards have been issued this year, Fazbee has been busy.
• 0:21
  SPEAKER_02: Several proposals are expected before year end with other projects underway.
• 0:49
  SPEAKER_02: Today we're covering the latest FASB developments.
• 0:53
  SPEAKER_02: While relatively few accounting standards have been issued this year, the FASB has been busy.
• 0:59
  SPEAKER_02: Several proposals are expected before year end with other projects underway.
• 1:04
  SPEAKER_02: We'll highlight key projects on the FASB's agenda, what changes are being considered, and why companies should be paying attention now.
• 1:13
  SPEAKER_02: We'll also explore how companies can get involved and provide feedback as these projects move through the standard setting process.
• 1:22
  SPEAKER_02: Joining me for this discussion are two familiar voices on the podcast.
• 1:26
  SPEAKER_02: Brett Dooley, a deputy chief accountant in PWC's national office, and Jay Celeber, a partner in our national office.
• 1:35
  SPEAKER_02: Both bring extensive experience navigating complex accounting matters and following FASB standard setting developments.
• 1:42
  SPEAKER_02: Brett and Jay, thanks for joining me and welcome back.
• 1:44
  SPEAKER_00: Thanks for having us on, Angela.
• 1:46
  SPEAKER_02: So so far this year, the FASBE has picked up a number of new projects with several already advancing to the proposal stage.
• 1:54
  SPEAKER_02: In fact, at the time we're recording this, there are three proposals, also called exposure drafts, that are currently open for public comment.
• 2:03
  SPEAKER_02: And based on the FASB's published timeline, of course, always subject to change.
• 2:07
  SPEAKER_02: Eight more proposals are expected before the end of the year.
• 2:11
  SPEAKER_02: So instead of going through that full list, I thought today we would focus on those topics that could have broader impacts to companies.
• 2:20
  SPEAKER_02: So let's just call this your cheat sheet of projects to have on your radar.
• 2:25
  SPEAKER_02: So, Jay, I'll start with you and a proposal that is already out for comment.
• 2:30
  SPEAKER_02: It's called cash equivalence, disclosure enhancement, and evaluation of certain digital assets.
• 2:37
  SPEAKER_02: So companies may look at that and see digital assets and think, okay, if I don't have any, this doesn't apply to me.
• 2:43
  SPEAKER_02: Is that true?
• 2:44
  SPEAKER_02: Give us some background and why companies might want to pay attention to this one.
• 2:49
  SPEAKER_00: Sure, sure.
• 2:50
  SPEAKER_00: Yes, this is an interesting one because, as you said, the main thrust of the FASBES project is to address whether certain digital assets that are designed to maintain a stable value relative to a currency, which are often referred to as stable coins, would qualify as cash equivalents in the statement of cash flows.
• 3:09
  SPEAKER_00: And on that front, the main front, the proposal isn't changing the definition of cash equivalence, but it would provide illustrative examples to help entities make this assessment and consider a couple of important attributes the FASBI is establishing, such as having an on-demand contractual cash redemption rate directly with the issuer, and the issuer having sufficient highly liquid segregated reserve assets backing their stablecoin.
• 3:37
  SPEAKER_00: And entities would also have to consider all the relevant laws and regulations in their jurisdiction, such as the Genius Act in the U.S.
• 3:43
  SPEAKER_00: in making that assessment.
• 3:45
  SPEAKER_00: But as part of that, as you were alluding to, the exposure draft would require that all companies, whether you have stable coins or not, would need to include in the annual footnotes a table breaking down cash equivalents by major category.
• 4:00
  SPEAKER_00: The draft doesn't explicitly define what those categories would be, but the proposed language the FASB has for it says, for example, U.S.
• 4:08
  SPEAKER_00: Treasury bills, commercial paper, stable coins, and money market funds.
• 4:13
  SPEAKER_00: So that would mean that if this proposal is finalized in its current form, every company would need to add an additional footnote disclosure with this kind of numerical information, even if they don't have any stable coins.
• 4:24
  SPEAKER_00: And that's the sleeper issue we're seeing here.
• 4:26
  SPEAKER_02: Yeah.
• 4:27
  SPEAKER_02: So do you have any insight into why the FASBE decided to include this broader footnote disclosure requirement in this proposal?
• 4:34
  SPEAKER_00: Aaron Powell Well, what they started with was a view that investors and other stakeholders were asking for additional information about stable coins because it's relevant to an assessment of an entity's liquidity and management of their cash and cash equivalents.
• 4:48
  SPEAKER_00: So the board first considered a stablecoin-specific disclosure requirement, which would have required entities to disclose the name and amount of each significant stable coin they hold that's being presented as cash equivalents.
• 5:02
  SPEAKER_00: But the board acknowledged that to make that disclosure requirement operable, they would have needed to define the term stablecoin, and they decided not to do that.
• 5:11
  SPEAKER_00: So in trying to blend all of that together, the board also considered the disclosure requirements under international accounting standards, which already have a disclosure requirement for the components of cash and cash equivalents, and the FASBE decided to include something similar, although we do anticipate this will probably be a little controversial in the response letter process.
• 5:30
  SPEAKER_02: Okay.
• 5:30
  SPEAKER_02: Speaking of the response letter process, when are comments due on this proposal and when would it be effective if it was finalized?
• 5:38
  SPEAKER_00: Well the comments are due on November 19th, and as is common for a lot of their proposals, the FASBE didn't set a proposed effective date, but they're asking for feedback about the length of time that would be necessary to implement the standard in the response letter process.
• 5:53
  SPEAKER_02: All right, thanks, Jay.
• 5:54
  SPEAKER_02: So Brett, I'll turn to you for the next topic, which is a proposal that's not yet out, but we expect to see it soon.
• 6:01
  SPEAKER_02: So this proposal would amend the guidance on equity-linked instruments, specifically classification as either a liability or equity.
• 6:10
  SPEAKER_02: So this is an area we've talked about a lot and where the FASBI is looking to possibly simplify the guidance.
• 6:16
  SPEAKER_02: What direction are they headed and how could it impact companies?
• 6:19
  SPEAKER_01: Sure, the the FASBI took on this project as a result of feedback through that invitation to comment process that they've been going through.
• 6:27
  SPEAKER_01: But this is, like you mentioned, this is an area where regulators have noted the complexity of the current model for years and observe some diversity in practice on how companies uh apply the guidance.
• 6:40
  SPEAKER_01: So this project is specifically targeting the indexation guidance for equity-linked instruments, and whether these instruments, like you said, are accounted for as mark-to-market liabilities or even sometimes assets, uh, or allowed to be classified in equity.
• 6:56
  SPEAKER_01: And this has been, you know, an area that's difficult to apply in practice in part because we don't have one comprehensive model.
• 7:03
  SPEAKER_01: You know, we always start uh by analyzing under ASC 480 to see whether the instrument is an asset or liability.
• 7:12
  SPEAKER_01: And if it's not an asset or liability under ASC 480, then we get into the derivative guidance in ASC 815 and whether the instrument is indexed to its own stock.
• 7:24
  SPEAKER_01: And as everything in the derivative, there's its own rabbit hole there, and there's a kind of a two-step process you go through.
• 7:31
  SPEAKER_01: I'm not going to walk through all of those steps, but I'm saying this because this indexation project is really focused on step two of that of that analysis.
• 7:41
  SPEAKER_01: So it's not addressing the overall model, it's not even addressing, you know, generally 815, it's really focused on one aspect of it.
• 7:50
  SPEAKER_02: Okay, so we're narrowing in on one piece of this guidance.
• 7:54
  SPEAKER_02: So what kinds of what types of instruments are most likely to be impacted?
• 7:59
  SPEAKER_01: Yeah, this is applying to uh instruments that are indexed to an issuer's stock price.
• 8:04
  SPEAKER_01: So the most common one is probably warrants that that are issued, but it also applies to say conversion options and convertible debt or preferred instruments, also forward contracts uh to issue or repurchase equity.
• 8:17
  SPEAKER_01: I'd say those those three instruments are the most common uh instruments to be to be impacted.
• 8:23
  SPEAKER_01: And the current guidance um looks at the settlement features of those contracts and analyzes it under what we call a fixed-for-fixed model, uh, where a settlement adjustment is is permitted if it's based on a standard input to um a value a fair valuation model for a fixed-to-fixed forward or option on equity.
• 8:45
  SPEAKER_01: And also there's a general rule that incorporating a leverage factor into these settlement adjustments would also preclude the instrument from being considered indexed to its own equity.
• 8:54
  SPEAKER_01: So that that explanation itself is complex.
• 8:57
  SPEAKER_01: You can understand why why we struggle in practice with this.
• 9:00
  SPEAKER_02: It does seem to be a little complicated.
• 9:02
  SPEAKER_02: So what is the FASBE looking to do to potentially simplify this?
• 9:07
  SPEAKER_01: So they're looking to eliminate this concept of fixed-for-fix rule and also any consideration uh of leverage.
• 9:13
  SPEAKER_01: Uh instead, under the model, the guidance would just include a list of variables that are allowed to be incorporated into any settlement adjustment.
• 9:22
  SPEAKER_01: And as long as your settlement adjustment in the contract is you know on that list of acceptable variables, your instrument's not precluded from being uh considered indexed to the own, your the entity's own stock price.
• 9:35
  SPEAKER_01: You have to go through the whole model, but we're just looking to a list of factors.
• 9:39
  SPEAKER_01: Um and the proposal would also add that adjustments based on the issuer's own operations or activities would also be an acceptable variable.
• 9:48
  SPEAKER_01: So I think the the idea they're pursuing is that there's gonna be less judgment involved.
• 9:52
  SPEAKER_01: I don't need to determine whether the adjustment is truly based on a fair value input or whether it introduced leverage.
• 9:59
  SPEAKER_01: I'm just comparing to an approved list.
• 10:01
  SPEAKER_02: That then we're gonna want to make sure that's a good list of items if we're gonna go that direction.
• 10:07
  SPEAKER_01: Absolutely.
• 10:08
  SPEAKER_01: And I think you know one of the concerns we've heard on the proposal is that it actually could result in some instruments that have very little economic exposure to equity being classified in equity.
• 10:20
  SPEAKER_01: For instance, uh interest rates are an acceptable variable under the proposed model.
• 10:25
  SPEAKER_01: So in concept, a contract that's highly leveraged to interest rates can be classified in equity even it as long as it has even a bit of equity indexation.
• 10:35
  SPEAKER_01: So I think that's something that will come up in the process now.
• 10:38
  SPEAKER_02: Okay, so if companies are interested in weighing in on this proposal, when do we expect to see it?
• 10:44
  SPEAKER_01: Right now we expect to uh see the exposure draft in the fourth quarter, uh, and we expect there will be a 60-day comment period to respond.
• 10:52
  SPEAKER_02: Okay, so pretty quick turnaround, especially this time of year.
• 10:54
  SPEAKER_02: So definitely want to keep an eye out for that.
• 10:57
  SPEAKER_02: All right, Jay, another upcoming proposal would uh make some changes to the guidance on the equity method of accounting.
• 11:05
  SPEAKER_02: So I know that impacts many companies.
• 11:07
  SPEAKER_02: Can you bring us up to speed on what changes they could be making in that area?
• 11:11
  SPEAKER_00: Sure.
• 11:11
  SPEAKER_00: Well, the biggest change is that they're proposing to get rid of the special treatment for investments in partnerships and many LLCs that result in applying the equity method to anything that is more than a minor investment, which is generally viewed as anything above about a 3 to 5% ownership level.
• 11:31
  SPEAKER_00: Instead, all investments would be evaluated against the same significant influence criteria that people may have heard of a little bit more in practice, and that that starts with the more commonly understood 20% presumption used for investments in corporations.
• 11:47
  SPEAKER_00: But it also considers other factors such as board representation or material transactions between the companies, managerial personnel moving between the companies, technological dependency, and some other things.
• 12:00
  SPEAKER_00: And what that would mean compared to current GAAP, fewer investments may end up qualifying for the equity method, particularly those investments in partnerships and LLCs that are more in like the 5 to 20 percent range.
• 12:12
  SPEAKER_02: Okay.
• 12:12
  SPEAKER_02: So if we're more focused on the concept of significant influence, are they planning to make any changes there?
• 12:19
  SPEAKER_00: Well, just a little bit.
• 12:21
  SPEAKER_00: You know, while there are certain presumptions, there is often a lot of gray here.
• 12:25
  SPEAKER_00: And the FASB is adding in one presumption that a general partner would always have significant influence over a partnership if it otherwise isn't consolidating it.
• 12:35
  SPEAKER_00: Uh and they're also going to remove one presumption.
• 12:38
  SPEAKER_00: They're going to keep the one that says that if you have a 20% investment, that creates a presumption of significant influence.
• 12:44
  SPEAKER_00: But they're going to remove sort of the inverse one in there now that says that a less than 20% interest creates a presumption of not having significant influence.
• 12:54
  SPEAKER_00: So that will just mean that there's more judgment to apply using those factors that I that I mentioned a little while ago.
• 13:00
  SPEAKER_00: Although we often see that happening in practice today, too.
• 13:03
  SPEAKER_00: But kind of beyond these and one or two other tweaks, Angela, the FASBI really isn't intending to add any more interpretive guidance about how to evaluate significant influence.
• 13:12
  SPEAKER_02: Got it.
• 13:13
  SPEAKER_02: So potentially less uh investments accounted for under the equity method of accounting, but potentially potentially more judgment around when you have significant influence.
• 13:23
  SPEAKER_02: Do we think companies are going to welcome this change?
• 13:26
  SPEAKER_00: Well, we think some will and some won't.
• 13:29
  SPEAKER_00: The feedback the FASBI had received in their 2025 agenda consultation did suggest that a number of companies end up having to do a lot of work to apply the equity method to these smaller investments.
• 13:42
  SPEAKER_00: And maybe that wasn't the best answer if they really couldn't influence what's going on there.
• 13:47
  SPEAKER_00: And respondents also said that it created some degree of confusion with their investors and trying to understand different accounting for different investments based solely on their legal form.
• 13:58
  SPEAKER_00: But there are certain industries that have a lot of these investments that like using the equity method because they can then apply the notion of a lag period in accounting for them that's allowed under the equity method.
• 14:08
  SPEAKER_00: And if the investments don't end up following the equity method under this guidance, they would need to be accounted for under the ASC 321 model for equity securities, which is a fair value model subject to certain measurement alternatives that require you to monitor for observable transaction prices and impairment indicators.
• 14:28
  SPEAKER_00: So that brings its own complexities and it doesn't allow the use of a lag period.
• 14:32
  SPEAKER_02: Okay.
• 14:32
  SPEAKER_02: Anything else to note in this project?
• 14:35
  SPEAKER_00: The FASB is also planning to bring into the equity method accounting codification section some of the guidance that's currently in the real estate industry specific section about using what we often refer to as the hypothetical liquidation at book value method to figure out your allocation of earnings or loss when the investee has a complex capital structure and the future distributions of cash out of the investee don't neatly line up with your ownership percentages.
• 15:04
  SPEAKER_00: And the FASBE also plans to include a couple of illustrative examples of this approach, which will which will be helpful.
• 15:10
  SPEAKER_02: Alright, so a few big changes there.
• 15:13
  SPEAKER_02: So if companies are interested in weighing in on this proposal, when do we expect to see this one?
• 15:18
  SPEAKER_00: Well, like the one that Brett just went through, the FASBE does anticipate issuing this exposure draft for public comment sometime here in the fourth quarter as well.
• 15:26
  SPEAKER_00: Although this one, Brett has a 75-day comment period, so a few more days to work on it.
• 15:31
  SPEAKER_00: But the planned transition method for this that we are seeing in some of the what they've put out so far would be tricky in that some things would be prospective, some things would be modified prospective, some things would be modified retrospective.
• 15:45
  SPEAKER_00: So our listeners will want to pay careful attention to the exposure draft once it comes out if it might affect you.
• 15:50
  SPEAKER_02: All right, good heads up there.
• 15:52
  SPEAKER_02: So let's shift now to some projects that are still in discussion.
• 15:56
  SPEAKER_02: So perhaps a little bit further out as far as timing for a proposal, but also things that companies may want to pay attention to because some of these projects are moving pretty quickly.
• 16:07
  SPEAKER_02: So, Brett, let's start with a topic that the FASB recently discussed and added a project on, which is the borrowers accounting for changes in debt.
• 16:18
  SPEAKER_02: I know they already made a few tentative decisions.
• 16:20
  SPEAKER_02: They seem like pretty big ones, so why don't you give us uh an update on what prompted the board to take on this project and what they're trying to do here?
• 16:29
  SPEAKER_01: Sure.
• 16:30
  SPEAKER_01: Um so this is a new project that the FASBE added to its agenda uh just in August.
• 16:35
  SPEAKER_01: And I say new because the FASB did have another project specific to debt exchanges that was put on pause earlier this year.
• 16:44
  SPEAKER_01: Uh but this new project is moving in a different direction uh that they than they had uh been working on earlier, and it's it's it's probably a much broader change to the overall debt restructuring guidance.
• 16:56
  SPEAKER_01: And I think they added this project in response uh again to its uh agenda consultation from last year, you know, probably a combination of that, the earlier debt exchange project that they wanted to try to finish, some feedback they'd gotten from the private company council around debt modifications and other outreach.
• 17:15
  SPEAKER_01: And I think you know, through all of that feedback, stakeholders believe that the current guidance is complex and costly to apply, especially for syndicated debt that's that's held by a number of lenders.
• 17:27
  SPEAKER_01: And investors have questioned whether the accounting here always reflects the best economics of the transactions.
• 17:34
  SPEAKER_02: Okay, so also potentially looking at some simplification here.
• 17:37
  SPEAKER_02: So what what are the key changes they're considering?
• 17:40
  SPEAKER_01: So maybe helpful to start with where we are today and and review that uh for people.
• 17:46
  SPEAKER_01: So um today any debt modification or exchange that affects either the timing or the amount of cash flows or the fair value of a conversion option in the debt has to go through a fairly complex analysis to determine the accounting.
• 17:59
  SPEAKER_01: You you start out uh by analyzing whether it's a troubled debt restructuring.
• 18:04
  SPEAKER_01: Um there's specific guidance for the borrower to assess if they're experiencing financial difficulties and if the lender granted a concession.
• 18:12
  SPEAKER_01: And if if both of those conditions are met, then we have a whole separate model for what we call TDRs, uh troubled debt restructuring.
• 18:20
  SPEAKER_01: And if it's not, then the borrower has to determine whether to account for the change is a modification to the debt instrument or an extinguishment of one debt instrument and the issuance of a of a new one.
• 18:30
  SPEAKER_01: And to make that determination, we use what we call the 10% test, where you are performing on a lender-by-lender basis and a test to compare the present value of the new contractual cash flows to the present value of the original contractual cash flows and asking yourself whether that's more than a 10% difference.
• 18:50
  SPEAKER_01: So with this project, the board is now considering one rule for all debt restructurings.
• 18:55
  SPEAKER_01: So any modification or exchange that affects the timing or the amount of cash flows or the fair value of a conversion option would be accounted for as an extinguishment.
• 19:05
  SPEAKER_01: Full stop.
• 19:06
  SPEAKER_01: No 10% tests, no TDR analysis, just if there's a change, uh it's an extinguishment.
• 19:12
  SPEAKER_02: Well, that that does seem simpler to apply than the cash flow test, but uh also pretty big big change there.
• 19:20
  SPEAKER_02: So any change to cash flows would require extinguishment accounting.
• 19:24
  SPEAKER_02: Do I get that right?
• 19:25
  SPEAKER_01: So at the August board meeting, that is the direction that the board was heading, but sub-board members did raise concerns, I can tell by the tone of your question, around whether that should be the right model.
• 19:38
  SPEAKER_01: So they did ask the staff to perform outreach on that question.
• 19:42
  SPEAKER_01: Um, you know, whether purely administrative or de minimis fees should be excluded from this.
• 19:48
  SPEAKER_01: Um there there may more to come after that outreach.
• 19:52
  SPEAKER_01: I personally think they may face a challenge in coming up with a model to assess what is de minimis.
• 19:58
  SPEAKER_01: Is that a quantitative test or is it a qualitative test?
• 20:01
  SPEAKER_01: And if it's quantitative, how do we do that?
• 20:04
  SPEAKER_01: Like maybe do a cash flow test?
• 20:06
  SPEAKER_01: Yeah, same test again.
• 20:08
  SPEAKER_01: And do we use a 10% threshold or a smaller threshold?
• 20:10
  SPEAKER_01: So I think there's there's going to be some questions in this and perhaps more to come on on this point.
• 20:15
  SPEAKER_02: Okay.
• 20:16
  SPEAKER_02: But if we are potentially heading towards more extinguishment accounting, maybe you could give us a quick reminder on what that accounting is.
• 20:24
  SPEAKER_02: Yeah.
• 20:24
  SPEAKER_01: So at a at a high level, when you have an extinguishment, the carrying value of the original uh debt comes off the books and the new debt goes on the books at fair value, and any difference between those two is uh recorded in PL.
• 20:36
  SPEAKER_01: So if the model goes through as as discussed, I think really making any change that to the debt that impacts cash flows, it'll require uh the new debt to be fair valued, and that fair value could be very different than the current, like than the carrying value, and so you'll have more uh PL activity uh on these debt modifications uh or extinguishments.
• 20:58
  SPEAKER_01: And uh of course getting to the fair value of a debt is sometimes judgmental, especially if there's not new lenders uh involved in the restructuring.
• 21:06
  SPEAKER_01: So that may actually add a bit more complexity uh to the model, even though the test may be simpler, the the ultimate judgments required to apply it uh may still be complex.
• 21:17
  SPEAKER_02: Right.
• 21:17
  SPEAKER_02: And they also made an accommodation, right, for private companies about that point on fair value.
• 21:23
  SPEAKER_01: That's right.
• 21:24
  SPEAKER_01: So non-public companies can make an election uh to measure that restructured debt at its principal amount rather than fair value.
• 21:31
  SPEAKER_01: So that would be an entity-wide policy election uh and also would not be available when there are multiple units of account identified.
• 21:37
  SPEAKER_01: For example, if you're issuing debt with warrants, uh you're still gonna have to go through uh a fair value analysis.
• 21:44
  SPEAKER_02: All right, so a lot potentially going on with this project.
• 21:47
  SPEAKER_02: Do we have a sense of when uh the FASBE might issue a proposal?
• 21:51
  SPEAKER_01: So it's not clear at this point.
• 21:53
  SPEAKER_01: Um I think the the board is going to be doing some continuing uh or is gonna continue its deliberations at a few.
• 22:00
  SPEAKER_01: Your board meeting.
• 22:00
  SPEAKER_01: They've asked the staff to do some outreach.
• 22:02
  SPEAKER_01: So I think more to come on this one.
• 22:04
  SPEAKER_02: Okay.
• 22:06
  SPEAKER_02: All right.
• 22:06
  SPEAKER_02: Jay, turning back to you, there's another current project on goodwill impairment testing.
• 22:12
  SPEAKER_02: Seems like this is a topic that uh or goodwill in general keeps coming up.
• 22:16
  SPEAKER_02: So what do they plan to address with this particular project?
• 22:21
  SPEAKER_00: You know, usually I'd like to say that the useful life of project discussions about goodwill before the FASB revisits them is more like a 10-to-20-year intangible asset.
• 22:30
  SPEAKER_00: But yes, the FASB is again looking at some aspects of goodwill accounting just a few years after dropping their last project on it.
• 22:38
  SPEAKER_00: And while the board hasn't officially decided on anything yet, based on the public meetings, they're tentatively leaning towards moving the level of testing up from the current reporting unit level to the operating segment level and eliminating the annual testing requirement and making it only trigger-based.
• 22:58
  SPEAKER_02: Okay, wow.
• 22:59
  SPEAKER_02: So no annual test.
• 23:00
  SPEAKER_02: That would be a pretty big change.
• 23:03
  SPEAKER_02: Why revisiting this now?
• 23:06
  SPEAKER_00: You know, yeah, we've been we've been testing goodwill for impairment both at the reporting unit level for as opposed to the segment level for decades, and with a required annual test supplemented by the interim trigger-based test.
• 23:18
  SPEAKER_00: So this would be a really huge shift for companies.
• 23:20
  SPEAKER_00: And I think it's largely driven by feedback the FASB got, particularly from companies, during that agenda consultation process.
• 23:27
  SPEAKER_00: And what companies were observing is that the identification of reporting units is only being done for purposes of testing goodwill, and that assets and liabilities allocated to those units didn't necessarily align with the company's overall bookkeeping and general ledger reporting, which makes the process to go through this cumbersome and time consuming.
• 23:48
  SPEAKER_00: And then as it relates to the annual test, the thought was that while if we're doing robust interim assessments, then the specific requirement to always have to do an annual assessment, even when there may be no indications of impairment, created a documentation and we'll call it a regulatory necessity that didn't really provide a lot of benefit, at least that was their perspective.
• 24:10
  SPEAKER_02: So kind of continuing this theme of simplification.
• 24:14
  SPEAKER_02: So do we have any sense of timing for a proposal on this project?
• 24:19
  SPEAKER_00: No, not yet.
• 24:20
  SPEAKER_00: And just like Brett, what you were saying about the debt project, this one has just been discussed preliminarily at an agenda-setting meeting.
• 24:26
  SPEAKER_00: So it is now officially on the FASBE's technical agenda, but they haven't progressed to any tentative decisions or anywhere close to an exposure draft.
• 24:36
  SPEAKER_00: But there was a clear leaning by a majority of the board in in that meeting to move in the direction that we were talking about.
• 24:43
  SPEAKER_00: Although several of the board members were a little concerned that making these changes could potentially mask impairments or delay their recognition, and both of those would be taking away decision useful information from investors.
• 24:56
  SPEAKER_00: And investors, admittedly, didn't really weigh in that much on the agenda consultation in this area.
• 25:02
  SPEAKER_00: So these board members wanted more research and outreach to be done before really making any decisions, which the staff is in the midst of doing now.
• 25:09
  SPEAKER_00: And so far we're hearing that feedback has been a little mixed.
• 25:12
  SPEAKER_00: So we'll likely see this one come back as well in 2027.
• 25:15
  SPEAKER_02: All right.
• 25:16
  SPEAKER_02: So no, don't go change your plans for your annual impairment tests quite yet.
• 25:20
  SPEAKER_00: Exactly.
• 25:20
  SPEAKER_02: All right.
• 25:21
  SPEAKER_02: So we've hit on some topics that are likely uh to be more relevant to a broader range of companies, but maybe we could just call out a couple more that might be of interest, a little lightning round.
• 25:33
  SPEAKER_02: Brett, what would you highlight?
• 25:35
  SPEAKER_01: Um I'd highlight the project on fair value uh focusing on investments uh with contractual sale restrictions.
• 25:42
  SPEAKER_01: Recently, the the FASBE completed a project and issued a new standard that was narrowly focused on investment companies uh in this area, but now has a project to more broadly consider that same guidance for a broad range of companies.
• 25:55
  SPEAKER_02: Okay, so more impactful.
• 25:56
  SPEAKER_02: Uh good call out, Jay.
• 25:58
  SPEAKER_02: Anything you'd like to mention?
• 25:59
  SPEAKER_00: You know, one one that companies may not be aware of is a project on non-refundable transferable tax credits.
• 26:06
  SPEAKER_00: So these are tax credits that have to be used to offset your actual tax liabilities.
• 26:11
  SPEAKER_00: That's what makes them non-refundable.
• 26:13
  SPEAKER_00: But a company that maybe doesn't owe any tax or can't use the credits in the near term could sell them for cash to another entity that can use them, and that's what makes them transferable.
• 26:22
  SPEAKER_00: And these became much more prevalent in recent U.S.
• 26:25
  SPEAKER_00: tax law changes.
• 26:27
  SPEAKER_00: And the accounting guidance isn't real clear on these, and in particular whether they should be treated as income taxes in the tax line or more like government grants and pre-tax income.
• 26:36
  SPEAKER_00: This was the subject of a technical inquiry to the FASBI staff a few years ago, and the staff at that point offered that they thought it was most appropriate to account for them in the tax line, but acknowledged that other guidance could also be applicable, essentially allowing for diversity in practice.
• 26:52
  SPEAKER_00: So to try to address this, and back in May, the board did consider it and they added a project to specify that these should follow the income tax accounting under ASC 740 and be presented in the tax line.
• 27:05
  SPEAKER_00: But they still have to work through some aspects of this and make formal tentative decisions for this to work its way into an exposure draft, so that's probably sometime next year as well.
• 27:13
  SPEAKER_02: Yeah.
• 27:13
  SPEAKER_02: I know many companies account for these as government grants.
• 27:16
  SPEAKER_02: In fact, Pat Durbin and I have a podcast on government grants where we touch on this a little bit and some of the complexities.
• 27:22
  SPEAKER_00: Right.
• 27:22
  SPEAKER_00: Yeah.
• 27:22
  SPEAKER_00: And because there is diversity in practice today that this is trying to narrow that into a single model.
• 27:28
  SPEAKER_00: But there's there's some challenges of how do you kind of make it all work against the income tax model.
• 27:33
  SPEAKER_02: Indeed.
• 27:33
  SPEAKER_02: All right.
• 27:35
  SPEAKER_02: Okay, so we've been talking about projects that are currently on the board's agenda.
• 27:40
  SPEAKER_02: But if we look even a little further out, there's some topics the FASBI's been discussing, but not yet decided to take on as an official project.
• 27:49
  SPEAKER_02: So there are a couple of these I wanted to highlight.
• 27:52
  SPEAKER_02: One, Jay, that the board talked about recently that seemed to get some momentum was around the guidance on business combinations and asset acquisitions.
• 28:02
  SPEAKER_02: And I know there's a lot of history of standard setting in this area.
• 28:06
  SPEAKER_02: In fact, at one point they were going to align the accounting between those two types of transactions, but then ultimately discontinued that project.
• 28:15
  SPEAKER_02: So what are they what are they thinking about?
• 28:17
  SPEAKER_02: What have they been discussing more recently?
• 28:19
  SPEAKER_00: Yeah, this topic continues to come up as a high priority in the agenda consultation process and other forms of feedback that the FASBE gets.
• 28:27
  SPEAKER_00: And a lot of that is driven by changes that FASB made to the definition of a business way back in 2017, which made a lot more transactions, what we call asset acquisitions rather than business combinations, even though the lines are sometimes quite thin here, and the company may be buying a legal entity with a number of assets in it, but it still doesn't qualify as a business.
• 28:51
  SPEAKER_00: So in practice, we run into a lot of both kinds of transactions, and the accounting models are quite different in a number of areas because they were really built off of assets.
• 28:59
  SPEAKER_00: So they originally was just buying an asset, not buying a whole collection of them that kind of looks and feels like a business, but it isn't an accounting business.
• 29:06
  SPEAKER_02: Could even be a legal entity.
• 29:08
  SPEAKER_00: Right, it could be a legal entity with lots of things in it, but uh but the model just didn't kind of contemplate all of that.
• 29:14
  SPEAKER_00: So uh there's there's a number of differences between the accounting models for these and areas like contingent consideration and in-process RD and deal costs, and we we talk about a bunch of those and others in in section 2.7 of our PP ⁇ guide.
• 29:30
  SPEAKER_00: And as you said, the FASBI has tried in the past to align the two models, but this has proven elusive.
• 29:36
  SPEAKER_00: Uh in some cases, there's more specific guidance for business combinations than there is for asset acquisitions, and maybe we analogize.
• 29:43
  SPEAKER_00: And in other cases, there's specific guidance for both, but they're just different.
• 29:47
  SPEAKER_00: And so the FASBE didn't make any specific decisions when they met in July about this, and it's not officially on their agenda yet.
• 29:55
  SPEAKER_00: But what they directed the staff to research more was maybe filling in some of the holes in the guidance for asset acquisitions, such as for contingent consideration and how to account for previously held interest in those legal entities that are just viewed as a collection of assets, uh, as well as some potential target improvements that might align the guidance, like for in-process RD and deal costs.
• 30:18
  SPEAKER_00: But I would say there there wasn't a groundswell of support to try to align all of the guidance between the two, or to try to come up with an entirely new model that would align them.
• 30:29
  SPEAKER_00: So I guess I would say, like with a limited number of these, stay tuned.
• 30:31
  SPEAKER_02: Yeah, yeah.
• 30:32
  SPEAKER_02: It sounded like they were thinking they could even make some changes to the business combinations guidance, not just to the asset acquisition guidance.
• 30:39
  SPEAKER_02: So definitely one to keep uh an eye out for.
• 30:42
  SPEAKER_02: Um, Brett, one that I wanted to ask you about is the uh cash flow statement.
• 30:48
  SPEAKER_02: I know this is a topic that keeps coming up, and people are wondering are they gonna make any changes?
• 30:53
  SPEAKER_02: Is this is this project moving uh anywhere at this point?
• 30:57
  SPEAKER_01: That's a that's a good question.
• 30:59
  SPEAKER_01: Um, and you're right, the board has talked about this topic on and off for some time.
• 31:03
  SPEAKER_01: Uh most recently they had a project focused on financial institutions, um, but then that was later removed from the agenda.
• 31:10
  SPEAKER_01: So the board last talked about this uh in June and it was reviewing feedback from that agenda consultation.
• 31:17
  SPEAKER_01: And the feedback that the board got was was very mixed.
• 31:21
  SPEAKER_01: Some stakeholders wanted targeted improvements, some favored a full redesign of the cash flow statement, and others preferred no change at all.
• 31:30
  SPEAKER_01: Um I think most emphasized trying to make the statement more useful to investors, um, and a few supported completing that project for our financial institutions.
• 31:40
  SPEAKER_01: Um the board in June discussed priorities for further research uh but didn't make any decisions.
• 31:46
  SPEAKER_01: I think this is one of those projects where it's easy to agree that the cash flow statement, you know, could use some improvement.
• 31:52
  SPEAKER_01: I think the harder part uh is is proving to be agreeing on exactly what should change.
• 31:58
  SPEAKER_01: So I think I think we'll see maybe more to come on this project at some point.
• 32:02
  SPEAKER_02: So for now this stays on the research agenda.
• 32:04
  SPEAKER_01: Yep.
• 32:05
  SPEAKER_02: All right.
• 32:06
  SPEAKER_02: Uh one last thing I wanted to mention, speaking of the research agenda, uh the board now has a standing topic that they've put on that research agenda called current trends and emerging issues.
• 32:19
  SPEAKER_02: And I think this provides a little more insight into some of the hot topics that the FASBE is monitoring.
• 32:25
  SPEAKER_02: And not surprisingly, one of those right now is data infrastructure investments.
• 32:31
  SPEAKER_02: Um even if your company is not specifically involved in one of those arrangements, we've certainly seen a lot about that in the news lately, including some of those complexities around investments or funding provided to customers and these, I guess I'll call them two-way uh relationships.
• 32:49
  SPEAKER_02: I don't want to call it round tripping, but uh between you know vendors and customers.
• 32:54
  SPEAKER_02: But certainly that term has been thrown out a lot.
• 32:56
  SPEAKER_00: Or three-way ones with a vendor, a customer, and some lease lessee or something.
• 33:01
  SPEAKER_02: They get more and more complex.
• 33:03
  SPEAKER_02: So based on some recent comments made by board members, it does sound they sound like they plan to discuss this at a future meeting.
• 33:10
  SPEAKER_02: So just wanted to call that one out.
• 33:12
  SPEAKER_02: Stay tuned.
• 33:13
  SPEAKER_02: Is there it could be more to come on that topic.
• 33:16
  SPEAKER_02: All right, before we wrap up, I wanted to spend a few minutes on how companies can get involved in standard setting and the Premise Medicine, all these projects we've just been talking about.
• 33:26
  SPEAKER_02: I mean, it certainly can be easy to just wait for the final standard to come out, but certainly the FASB encourages and benefits from participation from stakeholders, especially preparers who actually aren't have to implement these new standards that come out.
• 33:43
  SPEAKER_02: And it's much more difficult to make those changes after a standard is already final.
• 33:48
  SPEAKER_02: So I know Jay, Brett, you've both been close to standard setting for many years.
• 33:53
  SPEAKER_02: Um I'm interested in your advice to companies.
• 33:56
  SPEAKER_02: How how should they best engage?
• 33:58
  SPEAKER_02: So, Jay, starting with commenting on proposals, do you have any advice for our listeners on that topic?
• 34:04
  SPEAKER_00: Yeah, sure, sure.
• 34:05
  SPEAKER_00: Um, maybe a few things that our listeners could consider.
• 34:10
  SPEAKER_00: Uh I'll start with that, well, first anyone can write a comment letter.
• 34:14
  SPEAKER_00: Uh sometimes companies write a letter on their own or contribute to a letter written by a group of companies or an industry group or committee like the FEI.
• 34:24
  SPEAKER_00: And for our listeners, I guess, in this category, individuals and college accounting classes also write them and provide some interesting input as well to the FASBE.
• 34:34
  SPEAKER_00: I I would say you don't have to answer every question.
• 34:37
  SPEAKER_00: Usually an exposure draft at the beginning starts with a long list of questions the FASBI is asking, looking for particular input.
• 34:45
  SPEAKER_00: But uh I would say don't be dissuaded by there being a long list.
• 34:49
  SPEAKER_00: You can focus on the ones, only the ones that you have a particular viewpoint on and only only touch on those.
• 34:54
  SPEAKER_00: And while there's a deadline listed in all the exposure drafts, if you miss it by a few days, it's it's not necessarily too late.
• 35:00
  SPEAKER_00: The FASBI is often still open to feedback and we'll uh incorporate it as well.
• 35:05
  SPEAKER_00: And I guess in contact with that feedback, if you don't agree with the FASBI's approach in some area, I guess I'd recommend providing an alternative rather than just saying, we don't agree, because that's more likely to get action taken on it if there's something they can work with.
• 35:21
  SPEAKER_02: That makes a lot of sense.
• 35:22
  SPEAKER_02: So lots of opportunities to weigh in with three proposals out right now, and I think up to eight more by the end of the year, like I was saying earlier.
• 35:31
  SPEAKER_02: So lots of opportunities to uh respond to proposals.
• 35:35
  SPEAKER_02: Uh what about the projects that aren't yet at that proposal stage?
• 35:40
  SPEAKER_02: Brett, do you have to wait until a proposal is issued to weigh in?
• 35:44
  SPEAKER_01: You know, not necessarily.
• 35:45
  SPEAKER_01: Um, you know, and sometimes it's it's not the most effective strategy to wait uh for a formal comment process.
• 35:52
  SPEAKER_01: Um I think especially where there's a topic where there's a significant impact to a company or whether a company has uh significant experience in that area, um, or if the company has a strong view on the outcome, often it's helpful to reach out uh to the staff beforehand.
• 36:10
  SPEAKER_01: The FASB staff is generally open to meeting with preparers, um, you know, especially where the preparer has a special point of view to provide or can dig into their experience, either operationality or their experience with investors or other stakeholders on the topic.
• 36:27
  SPEAKER_01: I often I encourage companies to think of it as a relationship with the staff.
• 36:32
  SPEAKER_01: Like the staff is trying to do outreach, they're always looking for good sources of information, how they can learn more.
• 36:38
  SPEAKER_01: And being that type of resource to the staff, um, I think is often often valuable throughout the project, whether that's coming in early or or giving feedback later.
• 36:47
  SPEAKER_01: Um I encourage companies to think about what their unique perspective is.
• 36:52
  SPEAKER_01: The staff and the board is going to get feedback from all sorts of stakeholders.
• 36:57
  SPEAKER_01: What is special that the company can be providing the staff and think about that when when trying to engage.
• 37:04
  SPEAKER_01: And then, you know, Jay did mention industry groups.
• 37:07
  SPEAKER_01: Often that's that's uh helpful avenue to say to demonstrate that there is a common point of view.
• 37:14
  SPEAKER_01: Um the the board may not have to sort through all of the competing views if they hear that there is you know one um one common point of view on on specific areas, and so bringing that and having that debate in the industry committee and then bringing that to the to the staffer board, I think is is also helpful.
• 37:32
  SPEAKER_01: And then uh aside from you know projects that the that the FASBI is currently working on, we encourage companies if they have an agenda idea for the board, something that they see in practice that could use improvement, to continue to raise that.
• 37:46
  SPEAKER_01: You know, we did have an agenda consultation process, but even outside that process, um, you know, companies have have um submitted additional agenda requests and the board has taken those up.
• 37:57
  SPEAKER_01: So I think that avenue is always open to companies too.
• 38:00
  SPEAKER_02: Yeah, the FASB definitely continues to be focused on emerging topics and prioritizing those.
• 38:05
  SPEAKER_02: So I think that's that's good advice.
• 38:08
  SPEAKER_02: Well, we've been talking about projects that are still in the development stage, so all of these still subject to change, right?
• 38:15
  SPEAKER_02: So um in fact, there are some pretty big changes coming to the FASB itself uh next year.
• 38:21
  SPEAKER_02: So, Jay, do you expect those changes?
• 38:24
  SPEAKER_02: Maybe you can give us a summary of what they are, but do you expect those to impact these projects that we've been talking about?
• 38:30
  SPEAKER_00: Yeah, yeah.
• 38:31
  SPEAKER_00: For context, right, there's definitely a fair bit of board turnover happening in 2027.
• 38:37
  SPEAKER_00: So there's seven members of the FASBE board, separate from the staff, but the the board members who make the decisions.
• 38:45
  SPEAKER_00: And uh one of those, Rich Jones, he's the current chair, but he's wrapping up his seven-year term in June, and he'll he'll be departing.
• 38:53
  SPEAKER_00: So that's one change.
• 38:55
  SPEAKER_00: And Hilary Salo, who's the current vice chair, has been announced as succeeding Rich, so she'll take that role on come this summer.
• 39:02
  SPEAKER_00: But then also two new board members will be added at the same time this coming summer.
• 39:07
  SPEAKER_00: One will be taking Hillary's current seat, and one will be succeeding Marsha Hunt, who's the preparer representative on the board, and they'll try to um succeed her with another uh preparer of someone with experience from from uh from companies who actually have to implement these standards.
• 39:23
  SPEAKER_00: Uh and we did just have a change this past year with the act in the academic representative on the board, where Kathy Shakespeare succeeded Christine Baudasson.
• 39:32
  SPEAKER_00: So there's been a lot of change that's taken place, has been, or will be changing.
• 39:36
  SPEAKER_00: And so there definitely could be some changes in views and directions once all that that takes takes place.
• 39:41
  SPEAKER_00: Each person brings their own viewpoints to these discussions, and so different people could could come up, go in different directions from where we've been talking about today.
• 39:49
  SPEAKER_00: Um but of course there are five continuing board members, even with the two that are changing out this summer, and only a simple majority of four are needed to reach a decision.
• 39:59
  SPEAKER_00: So we're not necessarily expecting a drastically different direction when new board members come on, although if there are some close four to three decisions, uh you know, a change could result in a in a flip in which way that that decision goes.
• 40:11
  SPEAKER_02: All right.
• 40:12
  SPEAKER_02: Well, Brett, Jay, thanks for joining me today.
• 40:14
  SPEAKER_02: Lots of projects to continue to monitor.
• 40:17
  SPEAKER_02: So a couple ways that companies and and individuals can do that.
• 40:21
  SPEAKER_02: One, um, you can sign up for our accounting weekly newsletter.
• 40:25
  SPEAKER_02: We will have all the information there about new proposals coming out or any big decisions being made.
• 40:31
  SPEAKER_02: Um, as well, you can go look at the FASB's website where they have a list of all their current projects as well as their current timeline.
• 40:38
  SPEAKER_02: So something that you can uh continue to monitor and track.
• 40:42
  SPEAKER_02: So again, thanks to Jane Brett for joining me.