FASB proposes to improve interim reporting

The Financial Accounting Standards Board issued a proposed accounting standards update Wednesday that aims to improve the navigability of the disclosures that need to be provided for interim reporting periods and clarify both when that guidance is applicable and which disclosures are required in interim reporting periods. 

The proposed ASU is described as "narrow scope improvements" and it's not supposed to change the fundamental nature of interim reporting or expand or reduce the current interim disclosure requirements. Instead, the proposed ASU would offer greater clarity about the current interim reporting requirements.

The amendments in the proposed ASU would clarify that the guidance in Topic 270, the part of the FASB Accounting Standards Codification on interim reporting, applies to all entities that provide interim financial statements and notes in accordance with GAAP. The amendments would also create a comprehensive list in Topic 270 of interim disclosures that are required in interim financial statements and notes in accordance with GAAP.

The proposed amendments incorporate a disclosure principle, modeled after a previous SEC principle, that would require entities to disclose events and changes that occur after the end of the most recent fiscal year that have a material impact on the entity. The proposed ASU would also improve the guidance about information included in and the format of interim financial statements.

"One of the benefits of the [Codification] was it brought all this disparate accounting guidance into one location, and tried to make it much easier, so that if you were working on a topic, you could find it," said FASB chair Richard Jones during a session at Financial Executives International's Current Financial Reporting Insights Conference on Tuesday. "But then we had this chapter on interim reporting. And to be fair, when you looked at it, it probably didn't do a very good job of explaining when someone prepares interim financial statements, what disclosures are required on an interim basis. And so what we did was we spent a lot of time going through all of our old board memos, through the Codification, the predecessor to the Codification. And what we've attempted to do is to bring together into one place required interim disclosures, as well as adding in the disclosure principle that many of you are familiar with from prior SEC guidance related to material changes from the information in the annual report, and when you have to supplement that on an interim basis. And that's our objective. We had some board members who wanted to greatly expand interim reporting. We had other board members who said, 'Let's delete all the requirements and just go with the principle.' But ultimately, what we decided was we needed to clarify exactly what our standards did and didn't require, and that's what we're focused on."

FASB is asking for comments on the proposed ASU by March 31, 2025. Jones encouraged members of the audience of the virtual FEI CFRI conference who do quarterly reporting at least three times a year to take a look at the proposed ASU. "We think we're in a pretty good spot, but to the extent that you think we've included something or excluded something, that it's different from what was intended when the standards were issued, we'd be very interested," he said.

Jones said FASB expects to issue one additional final standard, six exposure drafts and three invitations to comments before the end of the year. This is one of those exposure drafts. 

During a press conference following the session, Accounting Today asked if FASB had been receiving much feedback yet on some of its recent standards on crypto assets and income tax reporting.

"I would say on the crypto standard, we haven't really heard a lot," said Jones. "Moving into fair value was pretty well received by all of our stakeholder groups. On income taxes, we've done a lot of outreach, and what we were talking about was expansion of disclosures currently required. I think those were pretty well understood. It's possible we'll get more questions before adoption next year, but as of now, we're not really getting a huge volume of inquiries."

Accounting Today also asked about FASB's plans to offer more guidance on key performance indicators. Later this week, FASB plans to send out an invitation comment on financial key performance indicators, Jones said during the session, and it will ask a series of questions about whether there's a role for FASB to play in standardizing financial KPIs such as EBITDA, funds from operation, free cash flow or an adjusted earnings measure. Accounting Today asked Jones whether this guidance might address some of the concerns the Securities and Exchange Commission has expressed about the use of non-GAAP measures.

"Whether they're concerned about them and which ones they are and aren't, I'll leave to them," said Jones. "We have heard from some stakeholders that we should be considering whether there are certain financial KPIs that should be brought into the financial statements. Now, what does that mean? For some that might mean, are there some financial KPIs that could benefit with a standardized definition, say a single definition of EBITDA, and what goes into that? For others, it may simply mean, what industries does it make sense to provide a KPI in the financial statements? Alternatively, some look at it and say, 'Well, maybe there are KPIs that the company's already using. Is there a way under a management type approach to bring them into the financial statements, or should potentially, they not be included in the financials?' So it's really us getting input on all those issues. Depending on what we hear from that ITC, we'll bring that back to our board, and our board will be able to make decisions on [whether] there's a need for standard-setting in this area."