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FASB and FASAC Discuss Technology’s Role in Future Standard-Setting

Without providing a clear picture of how the Financial Accounting Standards Board’s (“FASB”) agenda will be impacted by technological advances, the board’s Financial Accounting Standards Advisory Council (“FASAC”) considered the future of financial reporting at its June 15 meeting.

FASB and FASAC members both agreed investment firms’ technology use has evolved to the point that financial reporting may also change. FASB member and former fund manager Harold Schroeder stressed that companies, auditors, and standard-setters are facing a rapidly changing business environment with multiple users that rely on financial information. Schroeder said as time goes on, the evolving financial landscape changes standard-setting norms and introduces questions about materiality.

Meeting attendees also discussed the purpose financial reports serve when asset managers can employ technology to download financial statements and execute trades in an instant. Senior Analyst Lee Sotos commented that most of the stock market’s activity in recent years is due to several trading firms relying on the voluntary disclosures companies offer in earnings releases, not the statements that meet U.S. GAAP requirements. The FASB’s Lawrence Smith followed Sotos’ comments, asking what should be the true focus of standard-setting.

How technology evolves will play a significant role in the FASB’s standard-setting efforts. Senior executives depend on data-driven systems to review their business operations and industries. In addition, there is interest in more financial information being disclosed. It would be up to the Securities and Exchange Commission to establish reporting rules, or banks would need to require businesses to start reporting monthly rather than quarterly. FASAC members, however, believe it is possible for companies to make the move to continuous reporting.

Christine Botosan, a FASB member, said shifting to monthly reporting cycle will likely force the board to amend how standards are written. With the board already facing pushback over U.S. GAAP amendments that have yet to be implemented in companies’ financial reporting processes, Botosan said criticism would surely increase if new standards require a monthly application.

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