Wednesday, January 27, 2010

FASB Considering 'Big Bang' vs. Staggered Effective Dates

Our previous post summarizing the results of today's FASB meeting closed by indicating we'd be reporting 'more.'

'Big Bang' or Staggered Effective Dates?
During the discussion of the Financial Statement Presentation project at FASB's January 27 board meeting, the subject of whether to have a single effective date for multiple new standards (referred to by some as a 'big bang'* effect) vs. staggered effective dates, particularly given the pervasiveness of the changes that would occur under the Financial Statement Presentation project by itself, was raised.

Under the updated Memorandum of Understanding struck between FASB and the International Accounting Standards Board last fall, a host of major convergence projects are to be completed by June, 2011. **

The Financial Statement Presentation standard, in particular, will have a pervasive impact on financial statements. (For background, see "How Extreme Is The Makeover" by Marie Leone and Tim Reason, March 1, 2009, published in

FASB Board Member Leslie Seidman noted during the discussion of the Financial Statement Presentation project, that one consideration would be whether to make the final standard's effective date concurrent with, or separate from, the numerous other new standards contemplated to be issued over the next two years.

FASB Chairman Robert Herz stated, “We thought about putting out something separate on that question.”

Seidman added that it would be useful for FASB to find out from its constituents, “Is it cheaper to do everything at once, or to roll them out, and if so, in what order?”

[My two cents (I remind you of the disclaimer which appears in the right margin of this blog): Herz did not elaborate during the meeting, but it appeared from his reference to 'putting out something separate' on the issue of effective dates, that FASB may be considering releasing a separate request for public comment specifically on the question of staggered vs. aggregated effective dates for its slate of upcoming standards.]

Topic Discussed By FASAC
In a related development, FASB's Financial Accounting Standards Advisory Council (FASAC) discussed this issue at its October, 2009 meeting. As noted in the para. 90 of the FASAC minutes, (referencing discussion within a breakout group at the FASAC meeting):
"The break-out group stated that they believed all the new standards should be adopted together, with different effective dates for large and small (and maybe public and private) companies. Mr. Herz asked what time period would be required for the statements to be implemented, assuming they are finalized in June 2011. One Council member stated two to three years. Another Council member suggested that, assuming the statements were finished by that date, companies would need a full year to assess the system changes that are needed (2012) and two years to run parallel (2013 and 2014), which would put the implementation process at 3.5 years, and the effective date in fiscal year 2015. That member noted that this timeline would involve a flat-out effort, and that the internal processes for implementation, which include internal education as well as system changes, are incredibly challenging."

* Para. 87 of the Oct. 2009 FASAC minutes references the term 'big bang implementation.' The term is frequently used to describe a one-time changeover to numerous new standards, or in some cases, to another set of GAAP, as in the European Union's requirement for its listed companies to change over at one point in time (2005) from reporting in local GAAP, to adopting International Financial Reporting Standards issued by the IASB. A related reference to 'big bang' appears in a speech by PwC Chairman Sam DiPiazza in 2006: "Transforming the standards in 100 countries (including the 25 EU member states) towards a single basic platform is not just a noisy "big bang" -- but a courageous leap -- towards global standards."

** FASB has a useful summary, International Convergence of Accounting Standards - Overview, which addresses: (1) What does "International Convergence" of accounting standards mean, (2) How does convergence fit into FASB's mission, (3) What is the 'Roadmap' Proposed by the SEC, and (4) provides links to significant historical documents dating back to 1999 on this subject, including the 2002 "Norwalk Agreement."

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