FINANCIAL REPORTING
Annual Council Seminar - 2009
• Where should we be heading?
• Should US adopt IFRS?
1
FASB/IASB – Progress Towards
Conversion
The FASB and IASB have a
memorandum of understanding to
WORK TOGETHER! Can they?
A Taste of Common Projects:
Revenue Recognition
Leases
Financial Statement Presentation
2
Memorandum of Understanding
(2006 Norwalk agreement updated in September 2008)
Wouldn’t it be nice for FASB & IASB to
agree (converge) on all the major projects?
Work together, leverage off each other, and
share staff to develop the same high quality
standards – that is if they can agree?
The FASB & IASB are trying to get the same
answer on several major projects.
3
Revenue Recognition – The new
proposed model
Asset/liability view - Contract based. Get balance sheet right!
A performance obligation to provide goods and services under
the contract is a liability not deferred revenue.
Recognize revenue when there is a decrease in the performance
obligation
Dr
Performance obligation
Cr
xxx
Revenue
xxx
What if contract has multiple elements?
4
Multiple Element Arrangements – ship/install
• Allocate customer consideration (e.g., $900 in the
example) to each performance obligation
• Base it on proportion of the stand-alone Selling
Price of each:
SP
Consideration
– Machine
$800 80% $720 –rev 1st qtr
– Installation
200 20%
180 –rev 2nd qtr
– Total customer paid
900
What if there’s NO reliable evidence to support
stand-alone price – Estimate it anyway!
(next step – an exposure draft)
5
Leases - are they going on the
balance sheet (over $1 trillion)?
• Off-balance sheet leasing is an industry (legitimate
but often structured) under FASB 13 (and many, many
amendments and interpretations) – a truly rules based
standard to determine how to treat a lease!
Red lines – 75%, 90% - all or nothing –hmmm??
• If the FASB/IASB’s preliminary views are adopted
adopted, all leases would be capitalized:
Asset - Right to use an asset during the lease term
Liability - Obligation to pay rentals
6
Financial Statement Presentation- The
“Cohesiveness” Principle
Categories for each financial statement
to make it more useful for users!
-Business – operating and investing
-Financing
-Income taxes
-Discontinued operations
-Other comprehensive income
-Equity
Goal of FASB/IASB preliminary views document -- financial
statements should be clear and articulate!
7
STATEMENT OF COMPREHENSIVE INCOME
Sales
Costs (with lots of details)
Net income (business & financing shown separately)
Other comprehensive income (after tax)
Available for sale securities
Cash flow hedges
Unfunded pension benefit obligation
Foreign translation adjustment
Total OCI
Total Comprehensive income
Would this be an improvement ?
$1,000
800
200
30
(20)
(15)
(10)
(15)
$185
An ED is coming!
8
Conversion vs. Just Adopting IFRS?
• If US converges on major topics first, won’t
it be easier for US to just adopt IFRS
eventually? But when?
• What should the FASB be doing now:
Push ahead to converge,
Work towards switching to IFRS,
Just do its own thing, or
All of the above at the same time?
And what about the public sector?
Only Time Will Tell What Will Happen!
9