Financial Accounting Board to Craft an Agenda Tied to Feedback

The US accounting standard-setter’s top priority for 2025 is determining which issues to tackle next based on input from businesses that follow its rules and readers of their financial statements, the board’s chair said.

The Financial Accounting Standards Board plans to pursue an overarching agenda consultation next year after last launching a formal request for agenda feedback in 2021. That last round spurred the board to take on projects currently in progress covering areas such as accounting for software costs, government grants, and environmental credit programs.

The board will juggle the agenda process with a slate of ongoing efforts to fill gaps in the US rulebook governing financial reporting.

“We have a robust set of accounting standards,” FASB Chair Richard Jones said in an interview. “But there is a continuous improvement and maintenance element to this to make sure that they are always fit-for-purpose.”

FASB establishes standards for public, private, and nonprofit businesses that follow US generally accepted accounting principles, or GAAP. Financial statement preparers, investors, analysts, and academics are among those who have a stake in its work.

This past year, FASB released several updates to GAAP. It also closed out a decades-long effort to complete its internal handbook, which outlines bedrock financial reporting ideas.

Jones said his 2025 priorities also include pursuing FASB’s proposals on government grants and derivatives, as well as moving forward on the board’s research inquiries into accounting for intangible assets and financial performance metrics.

Intangible Assets

FASB announced Dec. 19 that it’s seeking high-level feedback on whether to modernize its decades-old rules for recording intangible assets—or nonphysical assets like patents and trademarks.

Current FASB guidance covers accounting for specific types of intangibles like software, as well as standards for expenses like research and development. The board wants to know whether it should develop a single model or target subsets of intangibles.

An overhaul of rules for intangibles would be a significant change, on par with the board’s lease standards and revenue rules, said Ron Graziano, director of accounting and tax research at LSV Asset Management.

Unlike the patents or customer relationships that businesses acquire by buying another entity, internally generated intangibles for the most part don’t show up on companies’ balance sheets, he said.

While some costs simply help companies “keep the lights on,” others related to intangible assets could lead to future cash flows, Graziano said. Increased disclosure regarding those distinctions would be helpful to investors, he said.

Performance Metrics

FASB opened the floor in November for comments on whether it should launch another formal project to better define certain company performance metrics that aren’t covered by US rules, known as non-GAAP measures.

Metrics like these often show up in corporate earnings reports. But businesses don’t have a standardized method to calculate financial data points such as free cash flow, adjusted net income, and earnings before interest, taxes, depreciation, and amortization.

These metrics can be an “important way for the company to tell their story,” Shripad Joshi, a managing director and accounting officer at S&P Global Ratings, said at a Dec. 5 Financial Accounting Standards Advisory Council meeting.

Still, businesses can adjust the data points to paint a rosier picture of their performance, Joshi said at the meeting. He pushed for stronger guardrails.

FASB staff members want to know from stakeholders which “financial key performance indicators” should be standardized, according to the comments request.

There are hundreds of potential indicators that could be included, so stakeholder feedback will be important, said Graziano, who is also a member of FASB’s Investor Advisory Committee.

Derivatives Rules

FASB will continue to review feedback in 2025 on its draft plan broadening exceptions to complex derivatives accounting rules, the board’s chair Jones said.

“As the economy and some of the overarching regulatory environment changes, these instruments are evolving and changing, and we’re trying to fit them all into the existing derivatives accounting guidance,” said Lara Long, managing director of accounting advisory services at Riveron Consulting. Long’s tenure as a member of a panel that advises FASB on its agenda and priorities ends Dec. 31.

Under US rules, transactions like forwards and options must be accounted for at fair value, or the current market price.

FASB’s July proposal would broaden what the board calls the “scope exception,” meaning qualifying transactions wouldn’t have to make fair value calculations every period.

Companies that wouldn’t have to report these transactions using the complex rules include those that borrow money with interest rates tied to meeting greenhouse gas emissions targets.

Government Grants

FASB expects to receive public comments by March 31 on its draft plan for government grants accounting. The proposal would require businesses to disclose a grant’s nature and its significant terms and conditions.

A flood of government relief kept businesses afloat during the height of the Covid-19 pandemic. Still, no specific US rule currently captures government breaks and cash grants. That can lead to accounting variability and inconsistency, Jones said.

“Filling that gap in GAAP should certainly be one of our priorities,” he said.

FASB’s plan relies on International Accounting Standards Board guidance for government grants.

While investors advocated for the plan to reduce optionality and increase comparability among financial statements, FASB’s proposed amendments instead “codify almost all the existing diversity in practice,” board member Christine Botosan said in a dissent included in the proposal.

FASB board members Joyce Joseph and Frederick Cannon have pushed for disclosures that would help investors better understand the potential future cash flows of businesses with and without the grants.

Jones said he looks forward to “robust discussion” on the proposal.