Costs and benefits: A Q&A with FASB Chair Richard JonesPosted on: December 1, 2020, by : promotiondept
Costs and benefits: A Q&A with FASB Chair Richard Jones
Making sure the costs of changes in accounting standards don’t exceed the benefits is a key objective for FASB Chair Richard Jones, CPA.
Jones replaced Russell Golden, CPA, as FASB’s leader in July after spending more than 30 years with EY, where he was the firm’s chief accountant and led the firm’s national office. Jones brings a deep technical understanding to the board. He began his role in a business environment reeling from the effects of the coronavirus pandemic while companies have been working to adopt challenging new standards on revenue recognition, lease accounting, and credit losses.
In this edited conversation with the JofA, Jones provides details on his background and his vision as he leads FASB through this difficult time.
How has your tenure at EY prepared you to lead FASB?
I spent over 30 years applying accounting rules and helping companies understand and apply them, so I bring a perspective on their costs and benefits, and how they’re adopted by public and private companies and organizations of all sizes. I do think that gives me certain insights into the application of GAAP and the standards the FASB issues. One of the things that attracted me to this role was the opportunity to get additional investor and user insights into standards, including the information they find valuable and how they use it.
Investors are important to standard setters. Can you expand on that?
Understanding what information is really useful to investors, and how and when that information affects their decisions, is a key input to the cost/benefit framework. It’s very helpful to ask these stakeholders how they’re using financial information under GAAP — recognizing, of course, that the answers may be very different for users of private company financial statements than for public company financials. I’ve been learning a lot through the outreach the FASB does, and my own outreach with the FASB staff and various stakeholders.
What’s your general philosophy on the role of standard setters and making the financial reporting environment a better place?
I truly value independent standard setting. I value it because I think it’s a great asset for our economy. But I think we have to continuously earn the right to be an independent standard setter. And part of that is being careful in the standards we set and making sure they provide relevant information to users while factoring in the cost associated with those standards. You’re going to keep hearing me talk about the importance of the cost/benefit analysis. It’s a very challenging analysis, but I think it’s one we have to be committed to do and always keep in perspective.
One of the things I have noticed since joining the FASB, and also when I was a member of FASAC [the Financial Accounting Standards Advisory Council], is that when you bring preparers and users together, you often find they can agree on a solution. When there’s some direct interchange between them, and an understanding of what information users are looking for, preparers can ask, “How will you use it? Maybe there’s some other information that would be more relevant or something we’re already giving you that you could focus on.” I think that’s a great way to come up with a solution to a problem. While I think our outreach with users is important, I also think that dialogue between preparers and users is important when coming up with a solution.
On the topic of independent standard setting, Congress in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, delayed the implementation date of FASB’s credit losses standard. Do you have thoughts on the precedent this sets and the challenge to independence that this situation brought about?
I do think independent standard setting is a great asset to our economy and for our economic system. That said, I certainly understand that we’re in unusual times, and I respect our government and its right to act to deal with certain challenges. I might have preferred that we address it through our process, but I respect their authority and ability to take action for our country.
Many of the less high-profile standards that have been issued over the past few years are intended to simplify financial reporting. Is it your goal to continue to do that?
Absolutely. When we talk about removing costs and complexity from standard setting, it’s important to focus on removing the unnecessary complexity. If we have a complex transaction, often the accounting for that will be challenging. That said, when we have unnecessary complexity in the system, there’s a cost to preparers and also to users. The cost to preparers is having to comply with a very complex standard. The cost to users is that that information can be challenging to convey and may also not be the most relevant. It may be conveying a level of precision that’s really inconsistent with what’s underlying those calculations.
What are your thoughts on the state of preparing and auditing in general right now? I know even before COVID-19 your predecessor, Russell Golden, was saying he thought folks were stretched thin and weary from implementing significant new standards like revenue recognition and leases, and then COVID-19 hit.
We certainly recognize that our stakeholders are operating in challenging times. There’s no doubt. And we have three significant standards [revenue recognition, lease accounting, and credit losses] that were adopted or are in the process of being adopted by our stakeholders. Significant standards are rarely one and done. In other words, we often get input about those standards, and we seek to make improvements to them. But recognizing the environment we’re in, we’re first focused on urgent and critical issues.
Second, we’re focused on improving standards that are not yet effective. For private companies that haven’t yet adopted some of these standards, we’ve committed to learn from the public company adoption and make changes if we think there’s a need to ease costs or to improve the information in those standards.
Third, when it comes to our pace of standard setting, we’re being very careful to ensure our exposure periods give stakeholders enough time to provide us with feedback that’s essential for quality standards. And when we issue new standards, we’re being very careful to set implementation dates that give them enough time to adopt those standards in a quality manner.
Is there anything on FASB’s agenda right now that you can say is very important to you?
I’ve been doing a lot of stakeholder outreach, which is a top priority. One of the benefits of people using different mediums to communicate during this pandemic is that I have been able to do an extensive amount of face-to-face stakeholder outreach, which is terrific. Ordinarily I’d have to do a lot of traveling to meet with people, and time spent on the road takes away from the time available to meet with other stakeholders. Another thing I’m particularly focused on now is the post-implementation review of our major standards. Revenue recognition, leases, and credit losses are three major standards companies have either adopted or are in the process of adopting. We are very committed to looking at them as part of our quality control phase, our post-implementation phase, to understand if they’re working the way we intended them to, to see if the benefits are there, and to ensure they don’t introduce any unnecessary cost or complexity into the system. This examination will let us know if there are any changes or improvements we need to make.
What do you think of the way private company accounting has worked over the last several years with the work of the Private Company Council (PCC), and where do you see it going from here?
I’ve long been an admirer of the PCC. I think they’ve done a great job identifying issues relevant to both private and public companies. I think there’s been a great partnership between the PCC and the FASB. I’ve been very impressed with the members of the PCC that I’ve gotten a chance to work with since joining the FASB. I think they have an excellent process, and they do an impressive job of outreach with their stakeholders to understand what issues they are facing so we can jointly work on them.
Do you have any goals you would like to share?
We live in an information age, so there exists an almost insatiable desire to learn more information. I don’t think financial reporting is any exception. Users of financial statements are hungry for additional information. At the same time, I understand there is a cost associated with any information that’s provided. I am extremely focused on understanding the information needs of users, the costs associated with providing that information, and how we will balance the two as we set our course going forward. Again, our cost/benefit analysis will be key in helping us determine that.
Do you see that technology can provide more of that information that users are looking for than ever before? Or is there a danger in that information that if you don’t really provide it in the right way and through the right filter, it can be misleading? What’s technology’s role in the current environment?
For technology to benefit financial statement users, it’s key to understand the user perspective on the information they need and how it affects their decisions as well as the costs associated with it — including the costs to users. For example, if you ask me for a phone number and I hand you the phone book, is that the most useful way of providing the information you are looking for? While technology can certainly help wade through large volumes of information, in many cases, it is more efficient and effective to focus on providing the most relevant information.
What have I not asked you that you would like to say?
One question I often get is about the case to change accounting standards. I think there are three things to consider when evaluating whether you should make a change. The first is whether that change would provide users with better information that would affect their decisions. The second is whether the change would remove cost and complexity. And the third is whether the change would clarify or bring consistency within GAAP itself. As we explore changing accounting, I think it’s important to understand those three buckets and where we’re falling, because that will drive whether or not we decide to change a particular item.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.
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