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Financial Reporting and the Law

The FASB has a number of projects on its agenda that are intended to enhance the usefulness of financial statements for investors and to simplify the statements’ preparation. Among the projects are the following:

  • Interim financial statements: The FASB plans to propose an update to its interim reporting requirements to clarify that annual financial statement disclosures should be updated in interim financial statements “if there is a substantial likelihood that the updated information would be viewed by a reasonable investor as significantly altering the ‘total mix’ of information available to the investor.” This change would reduce footnote disclosures in some interim financial statements.
  • Goodwill: The FASB is considering whether to propose one of the following alternatives to the accounting for goodwill:
    • Adopt a new alternative for private companies that
      • requires amortization of goodwill 10 years or less than 10 years if a company demonstrates that another useful life is more appropriate;
      • permits a company to determine whether to test goodwill at the entity level rather than the reporting entity level; and
      • requires goodwill testing only when a triggering event occurs.
    • Require amortization of goodwill over its useful life, not to exceed a maximum number of years.
    • Require the write-off of goodwill at the acquisition date.
    • Require goodwill testing using a simplified impairment test.
  • Footnote disclosures: The FASB’s staff will consider ways in which the FASB can encourage companies to exercise more discretion as to the footnote disclosures about the following:
    • Fair-value measurements
    • Defined benefit plans (pensions)
    • Income taxes
  • Statement of cash flow: The FASB’s staff is considering developing possible guidance on how companies should classify certain cash flows.
  • Inventory: The FASB added a project to its agenda to consider simplifying inventory impairment testing.
  • Extraordinary items: The FASB added a project to its agenda to consider eliminating the reporting of extraordinary items on the income statement.
  • Income statement format: The FASB directed its staff to consider whether there are ways to improve the relevance of information in the income statement, which it calls the performance statement. Among the areas the staff will consider are the following:
    • A framework for determining an operating performance metric
    • Distinguishing between recurring and nonrecurring or infrequently occurring items within the performance statement
    • Additional disaggregation in the performance statement, such as information by industry segment
    • Transparency of remeasurements