The Financial Accounting Standards Board is revisiting a project that could lead to a minor cleanup of U.S. generally accepted accounting principles that are contained in the Accounting Standards Codification, a 14-year-old document maintained by FASB that is considered the authoritative home for GAAP, which sets the standards for corporate financial reporting.
The FASB proposed in 2019 removing some detailed information such as definitions, dubbed “concept statements,” from the codification which are not part of GAAP, but which can help explain how they are applied according to documents provided before a FASB meeting Wednesday, when the board is scheduled to decide whether to proceed with the plan.
While the project is not expected to change how GAAP is used in practice or to be particularly controversial, the proposed changes have sparked some debate about the project’s potential “unintended consequences,” with accounting firms writing seven of the 10 comment letters received, according to the meeting material.
The codification update is one of the lower key changes that the FASB has taken up in recent months. It has surfaced on the board’s agenda after years on the back-burner and as the board has recently approved such hot-button issues as a controversial requirement under which companies will have to report vastly more information about the taxes they pay and new standards for crypto assets.
Among the details of the new plan that have stirred concern is the board’s plan to remove the definition of the term transfer from the codification. “Two respondents suggested that deleting the first definition of the term transfer could result in confusion. The other respondent stated that using the term transferring in paragraph 230-10-50-4 in the consequential amendments but linking to the Master Glossary term transfer is confusing,” the material from the staff stated.
The plan to remove the definition of expected losses and expected residual returns drew responses from four commentators. While three respondents supported the removal and the amendments to Topic 810, Consolidation, those respondents also recommended clarifying amendments to the standalone definitions of the terms expected losses and expected residual returns. “Those respondents recommended that the aforementioned language be incorporated in those standalone definitions by providing a glossary link to the term expected cash flow,” the material states.
The codification update could be implemented sometime early next year.