Our outlook on the FASB research and technical agendas

FASB Invitation to Comment, “Agenda Consultation”

In response to its June 2021 Invitation to Comment (ITC), “Agenda Consultation,” the FASB received feedback about its future standard-setting agenda from a broad group of stakeholders, including investors and other financial statement users, preparers, Crowe and other practitioners, trade groups, state CPA societies, and others. As summarized by the FASB staff in December 2021, certain themes arose with respect to topics that many ITC respondents believed should be prioritized, including, but not limited to:

• Accounting for digital assets
• Disaggregation of financial reporting
• Transactions and disclosures related to environmental, social, and governance (ESG) matters
• Intangible assets (including software costs)
• Recognition and measurement of government grants for business entities
• Consolidation guidance

FASB research agenda changes

The FASB technical agenda includes active standard-setting projects that, following board deliberations, stakeholder input, and other due process activities, might result in an update to the FASB Accounting Standards Codification. Separately, the FASB chair establishes the research agenda, which includes projects that might be added to the FASB technical agenda following a majority vote from board members.

As a result of the ITC feedback, Richard Jones, FASB chair, announced sweeping changes to the FASB research agenda in December 2021.

Following these and other changes, the FASB research agenda currently includes the following projects:

• Accounting for and Disclosure of Intangibles. This research project will consider potential ways to improve the accounting for and disclosure of intangibles, including software costs, internally developed intangibles, and research and development.

Crowe observation: In April 2022, the board discussed the research performed to date on the Accounting for and Disclosure of Intangibles project, specifically with respect to software costs. The board did not make any technical decisions, but it did direct the FASB staff to continue research, which subsequently will be considered when deciding whether to add a project on software costs to the FASB technical agenda. While no decisions were reached, each of the board members indicated a preference to update the accounting standards for software costs, including eliminating the distinction that exists in current U.S. GAAP with respect to a) software developed for internal use and b) software developed to be sold, leased, or otherwise marketed. The board also discussed various recognition and measurement models that could be used to modernize the standards such that the resulting accounting better reflects how software is presently developed, following evolutions in the software industry since the current standards were first issued.

• Accounting for Exchange-Traded Digital Assets and Commodities. This research project will explore accounting for and disclosure of a subset of exchange-traded digital assets and exchange-traded commodities.

Crowe observation: Digital assets garnered the highest volume of stakeholder responses to the ITC, with 445 of the 522 ITC respondents commenting solely on the accounting for digital assets. The remaining 77 respondents submitted more holistic comments on the ITC, many of which addressed digital assets in addition to other topics. Digital assets also are top of mind for regulators; on March 31, 2022, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin No. 121 to provide accounting and disclosure guidance for entities involved with safeguarding crypto assets on behalf of other parties. The FASB staff will present its research to the board at the May 11, 2022 meeting, so it’s likely this item might move to the FASB technical agenda in the near term.

• Accounting for Financial Instruments With Environmental, Social, and Governance (ESG)-Linked Features and Regulatory Credits. This research project will explore accounting for and disclosure of financial instruments with ESG-linked features and regulatory credits.

Crowe observation: As highlighted in a FASB Staff Educational Paper issued in March 2021, many ESG-related matters and financial accounting standards currently overlap. However, other ESG-related transactions might benefit from further standard-setting, including financial instruments within the scope of this research project. Examples include embedded features within bonds or other hybrid financial instruments that reference ESG-related metrics (sustainability bonds). The FASB staff will present its research to the board at the May 11, 2022, meeting, so this item might move to the FASB technical agenda in the near term.

• Accounting for Government Grants, Invitation to Comment. This research project will solicit feedback on whether the requirements in International Accounting Standard (IAS) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” should be incorporated into GAAP.

Crowe observation: The COVID-19 pandemic highlighted the need for an accounting model within U.S. GAAP to address how for-profit entities should account for government grants. Without explicit U.S. GAAP guidance, many for-profit entities accounted for certain government grants received during the pandemic by analogizing to other models, including, but not limited to, IAS 20.

• Agenda Consultation. This research project will solicit feedback about the financial reporting issues that the board should consider adding to the FASB agenda and the priority of those issues.

Crowe observation: The receipt of ITC feedback during 2021 did not mark the completion of this project. All ITC feedback will be discussed by the board, and such discussions have been ongoing during 2022.

• Consolidation for Business Entities. This research project will explore whether a single consolidation model could be developed for business entities. This research project does not include reconsideration of the consolidation guidance in Topic 958, “Not-for-Profit Entities.”

Crowe observation: The FASB has continued to discuss ITC feedback during 2022, resulting in further changes to its agenda. In April 2022, the board voted to remove its Consolidation Reorganization and Targeted Improvements project from the FASB technical agenda, and Jones instead added this Consolidation for Business Entities project to the FASB research agenda. However, Jones stated at the meeting that he anticipated “a bit of a delayed start” for this research project, given the volume of other matters on the FASB research and technical agendas.

• Hedge Accounting Phase 2. This research project will seek stakeholder feedback that could bring further alignment of hedge accounting with risk management activities beyond the targeted improvements made to the hedge accounting model in Accounting Standards Update (ASU) No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” and consider changes to the definition of a derivative.

Crowe observation: Crowe has commonly observed misapplication of concepts such as “little to no initial net investment” and “net settlement” within the definition of a derivative. While we do not believe a fundamental change to the definition of a derivative instrument is needed, development of additional staff educational materials or inclusion of additional examples within the codification would assist stakeholders in their interpretation and application of existing guidance.

Other updates to FASB technical agenda as a result of ITC feedback

In addition to research agenda changes, several changes were also made to the FASB technical agenda in early 2022, again considering the ITC feedback. Changes include the removal of the Consolidation Reorganization and Targeted Improvements project (as previously described), as well as the following developments:

• In February 2022, the board revised the objective and scope of its Disaggregation – Income Statement Expenses project (formerly the Financial Performance Reporting – Disaggregation of Performance Information project), which is now concentrated on the disaggregation of certain income statement expense captions for business entities, including selling, general, and administrative expenses; cost of services and other cost of revenues; and cost of tangible goods sold.
• In March 2022, the board revised the objective and scope of its Targeted Improvements to Income Tax Disclosures project (formerly the Disclosure Framework: Disclosure Review – Income Taxes project), which is now focused on improving disclosures of income taxes paid and the rate reconciliation table.
• In April 2022, the board removed the Distinguishing Liabilities From Equity Phase 2 project from the FASB technical agenda. At the meeting, however, Jones mentioned that he personally thought the FASB might need to consider the topic again in the future, stating, “I think this is something we have to deal with at some point in time. I’m not sure that now is the time, but I think we will have to deal with this.”

Other developments

Beyond considering ITC feedback, the FASB also continues to make headway on other projects on its technical agenda, including, but not limited to:

• Identifiable Intangible Assets and Subsequent Accounting for Goodwill
• Segment Reporting
• Reference Rate Reform
• Disclosure of Supplier Finance Program Obligations

We expect to release additional insights on those projects as they progress.

We will keep you updated on important FASB activities and other accounting and financial reporting developments within our new Take Into Account knowledge hub.