Unpacks crypto and FASB’s new priorities with Richard Jones
The Financial Accounting Standards Board (FASB) has been making some big decisions lately. It has added such hot-button issues as cryptocurrency and digital assets, environmental credits and software costs to its technical agenda, signaling that a problem is a top priority and tearing it up for default setting. It has also dropped a four-year project to change goodwill accounting.
These changes follow a long-term outreach effort led in 2020 by the then newly arrived FASB leader Richard Jones. The goal: to get input from investors, accountants, auditors, regulators and academics about where the board should focus its standard setting work.
Richard Jones
With permission from FASB
Taking on the outreach agenda program was one of the first steps Jones took after joining the FASB. After nearly three decades of “applying the rules” at Ernst & Young, Jones told CFO Dive that it was “important for me to contact all of these stakeholders to understand where they came from, where we could improve financial reporting, and the best way to move forward. ” The FASB’s efforts, which drew more than 500 responses, of which 445 dealt with digital assets, were terminated last month and led to a revised agenda.
Jthey recently spoke with CFO Dive about the outreach process and his views on the FASB’s priorities going forward. The following is a question and answer between Jones and CFO Dive’s Maura Webber Sadovi. Notes are edited for clarity.
CFO Dive: You have been given a new technical agenda as a result of the outreach initiative. Do you have more projects on your plate than FASB has historically had?
Richard Jones: We have 18 projects on the technical agenda and eight projects on our research agenda. Not all projects are the same; some are narrower and some are wider, so a mere comparison of numbers would not be fair. We have a fairly full agenda between the technical and the research agenda, but we have one that I am sure we can achieve.
CFO Dive: Were you surprised by something you learned through the outreach program?
Richard Jones: We started it in the middle of the pandemic, so one of the things I was pleasantly surprised by was how interested our stakeholders are in improving financial reporting – and so are all our stakeholders. I mention that time frame because I think it was unique. There were all kinds of business and other challenges, but people took the time to evaluate our process because they understood the importance of accounting and financial reporting. There were many good ideas that came in, and we have been able to use them to shape projects on our existing agenda, as well as add new projects.
CFO Dive: Were you surprised by the volume of feedback you received on crypto?
Richard Jones: I must admit that there are probably many people in that group who had never heard of FASB before, and I was joking that this was probably the only time FASB ever had a trend on social media related to crypto. But it was important. I realize that some of these respondents may have been more inclined to invest in crypto than a company that holds crypto and does financial reporting, but it is still important that we throw the wide web to get that input.
CFO Dive: It was a reversal around crypto with the FASB recently putting it on its technical agenda after choosing not to address it in 2020. How did that happen?
Richard Jones: A year and a half ago, we saw a couple of companies that had a significant amount of crypto on the balance sheet, and it was probably fair to say that people were not necessarily sure how wide this problem could apply in the future. One nice thing about making the agenda outreach was that we heard from several stakeholders and their views on it. I want to tell you that we have received a wider range of input as well as people’s insight into whether they thought this was going to be a problem in the future. And I think our board looked at the whole of the input and said that we think now is a good time to work on it. It was simply a shift, an acceleration of prioritization. We also had a chance to remove some other things from our agenda.
CFO Dive: There has been a call from someone in the crypto sector to get a quick solution from the FASB on the question of fair market value. Is there anything you are considering?
Richard Jones: Where we are, our board must make a decision on scope. It is an important part of this because digital assets are a fairly broad category and it is far beyond crypto. I would not be surprised if our board limits this scope significantly. Not all cryptocurrencies are the same. Some of it has nothing behind it, some of it has something behind it or has other rights. We have to make a decision whether we are dealing with crypto where it is simply a series of numbers that are exchanged as a bitcoin or whether we should relate to some other categories. The narrower we do it, the easier it will be for us to make a quick solution. We have not made that decision yet.
CFO Dive: What about goodwill accounting? How did the FASB take it off the technical agenda after four years?
Richard Jones: I joined that project for two years, to be fair. Board members had a number of different reasons, but… the board was unanimous in the decision that we were not interested at the time in pursuing that model. This does not mean that we lose the information. That does not mean we could not add it in the future. This does not mean that we could not learn anything from the IASB [International Accounting Standards Board], but as a result, we removed it from our agenda. From my perspective, I think the default setting we do not make is as important as the default setting we do, because by choosing not to change, you have made a decision as big as choosing to change. Sometimes it takes enough information to make that choice to fully evaluate it. Goodwill was an example of that.
CFO Dive: What are your priorities now?
Richard Jones: Although I would say that projects on our technical agenda are all our priorities, there are certain projects we heard were the priorities of our stakeholders. When we think through their priorities, their first under the general theme was the breakdown of financial information. We have a project on our technical agenda called disaggregation of income statement expenses, which is a direct response to that. We also have a project to reveal additional expense information [for business segments]. We also have a project to improve tax information, [as stakeholders] was looking for further transparency about international taxes and certain state and local taxes. I would say that division will be number one, and there are three projects that will fall within it. Digital assets was also one that came out loud and clear. We have also heard many suggestions on environmental issues.
CFO Dive: When you put something on the agenda, what is the time frame for completing a project?
Richard Jones: Most of the projects on our agenda probably have a time frame of one to three years for implementation. Remember that our process starts with us evaluating a model, making an exposure draft and evaluating all the feedback we receive. At that point, we may decide to complete a standard, re-expose a standard, or drop it. All this affects the timing of what is happening. But I want to tell you that for the disaggregation projects, you will see exposure drafts on most of them over the next year. Depending on where we go with digital assets, there is a fairly reasonable time estimate for digital as well.
CFO Dive: Why do you think investors are focused on the disaggregation theme?
Richard Jones: It is [evolved] as investors try to understand the nature of the costs incurred. I expect that the driving force behind the breakdown of expenditure is probably driven by the variation in costs – perhaps there is inflation, perhaps there are simply supply constraints, perhaps there is a lack of employment.
CFO Dive: I would like to turn to the broader regulatory environment. What consequences do you see in the accounting landscape or at the FASB from the recent signals of more aggressive regulatory attitudes at the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB)?
Richard Jones: Whether they are more aggressive or not, I leave to you to decide. At FASB, we have set accounting standards for almost 50 years, and there have been many different regulatory regimes and different economic cycles. We obviously have close partnerships with PCAOB and the SEC, and we continue to share information with them and understand their perspectives. But ultimately, one of the organizations that chooses to focus on one area or take action in one area or another does not necessarily affect us, nor does it take us away from our core mission of improving financial statements.
CFO Dive: As chairman of the board, what do you hope to achieve and realize as your legacy at FASB?
Richard Jones: That’s an interesting question. I see myself as a caretaker who comes here to fulfill the FASB mission. I hope my legacy is that I came in as chairman of the board and helped to improve the accounting reporting. It sounds simple, but I would be very happy with it.
