The U.S. standards setter is preparing for a changing of the guard as its current chairman, Russell Golden, steps down at the end of June after seven years in the position. And for at least the remainder of his term, the board is focused on two issues: differentiating liabilities from equity and improving the measurement of goodwill. Those are among the more significant proposals the FASB expects to address before June.
The FASB in July proposed a new standard to help companies further differentiate between liabilities and equity. The narrow differences between liabilities and equity have created confusion among companies and investors and led to many restatements.
After reviewing the comments it received at a recent meeting, the board asked the FASB staff to recommend alterations to the proposal involving the classification of a contract in a company’s equity. The board plans to continue discussing the plans next year.
Separately, the FASB is trying to decide whether to propose changes to the measurement of goodwill. Goodwill is an intangible asset created when a company acquires another business for more than the value of its hard assets.
The rules now require companies to test goodwill for potential impairment each year. The board gave private companies the option to amortize goodwill over a 10-year period in 2014, and offered nonprofits that option in May this year. Amortization is the write-off of goodwill over the course of years.
A change to the rules has the potential to affect all companies, not just public companies, which still lack the amortization option. To make a decision, the FASB has been studying the cost-effectiveness of the current rule and held a public roundtable in November 2019. Many companies have said the existing rules for goodwill burden them with unnecessary costs and are too subjective. Going into 2020, the board expects to continue public discussions on the subject.
The impact of several new accounting standards on both companies and investors will also play out over the next year. The delays of several standards—on lease accounting, hedge accounting, current expected credit losses, long-term insurance contracts—give many companies at least the next year to prepare for changes.
One thing is for sure, accounting standards will continue to change and the reporting for your Company today will probably look different a year from now.
Those concerns are our priorities at Gollob Morgan Peddy PC and we would love to visit with you and help you understand the ever changing rules which you have to follow for your financial reporting.