REVIEW OF THE EMERGING ISSUES TASK FORCE Conclusions and Recommendations
Financial Accounting Standards Board www.fasb.org
REVIEW OF THE EMERGING ISSUES TASK FORCE BACKGROUND OF THE EITF The Financial Accounting Standards Board (FASB) created the Emerging Issues Task Force (EITF) in 1984. Originally, the EITF was expected to help the FASB provide timely guidance on emerging issues and implementation questions by identifying problems and advising the Board about them, as well as offering possible solutions. The EITF s operating procedures and due process evolved, and the EITF soon began spending more of its efforts in reaching consensuses on solutions to issues, with encouragement to do so by the FASB and the staff of the U.S. Securities and Exchange Commission (SEC). From the start, the SEC staff said that it would expect SEC registrants to apply EITF consensuses and required them to do so. In 1992, the AICPA s Auditing Standards Board designated EITF consensuses as authoritative accounting literature for all companies. The EITF is composed of a combination of users (different types), preparers (public/ private), and auditors (large/small). It is chaired by the FASB s technical director who votes only when there is a tie. The SEC, the Financial Reporting Executive Committee of the AICPA (FinREC), the IFRS Interpretations Committee, and the Private Company Council (PCC) all may have observers represent their organizations during EITF meetings. Usually, most Board members also attend meetings as nonvoting observers. Currently, the EITF meets every two to three months. As a part of the FASB s agenda prioritization process, the Board members decide which agenda items are assigned to the EITF. The Board typically assigns issues to the EITF that are narrow in scope and that they expect can be resolved in a year or less. Prior to an EITF meeting and after the agenda prioritization process, the FASB staff performs research and outreach to prepare an Issue Summary that describes the problem, relevant accounting pronouncements, and arguments about the possible solutions. The EITF discusses each Issue, and a consensus is reached when no more than three of the voting members object to the proposed accounting. From time to time the SEC Observer and the FASB staff make announcements at EITF meetings on urgent accounting matters that do not require a vote by the EITF. The FASB generally conducts a review of the EITF every ten years. At the conclusion of the EITF s 30th year of operation, the FASB Chairman appointed certain members of the FASB staff to conduct a formal review. This review performed in 2015 analyzed the overall operating effectiveness of the EITF. The results and recommendations were presented to the Task Force at the June 18, 2015 EITF meeting. REVIEW OF THE EMERGING ISSUES TASK FORCE 1
EITF REVIEW REPORT SUMMARY AND OBJECTIVES The operating review conducted by the FASB staff focused on enhancing the efficiency and overall effectiveness of the EITF s existing process by identifying areas in which the EITF s operations could be improved. Twentyfour individuals participated in the review, including current/former EITF members, current/former Board members, and others who have had significant exposure to the Task Force s standard-setting process. Participants were asked to provide constructive feedback on existing processes to identify opportunities to improve and enhance them, and to ensure that they continue to contribute to the EITF s success in supporting the FASB s standard-setting process. The discussions covered a number of topics that are important to the EITF process including: agenda setting, voting requirements, member composition and terms, frequency and length of meetings, quality of meeting materials, and interactions with FASB staff and Board members, among other topics. The following discussion summarizes the more significant observations and the FASB staff s recommendations based on those discussions. KEY OBSERVATIONS Overall Evaluation Overall, operating review participants thought that the EITF should maintain its current role, namely, focusing on the timely resolution of narrow issues that result in diversity in practice. Participants noted that EITF members are highly technical and deeply involved in current practice issues and, therefore, the FASB should continue to leverage their knowledge and experience to quickly resolve those issues. Other participants, mainly Task Force members, commented that the EITF should be used when considering additional implementation guidance associated with new standards, while others would like to expand the role of the EITF to aid the FASB in the simplification of existing GAAP. In addition, several participants noted the importance of clearly defining the role of the EITF and the scope of specific EITF Issues to increase the EITF s operating efficiency. Voting Requirements The EITF s current voting model requires that no more than three Task Force members object to a decision to reach a consensus. The majority of participants stated that the current voting model is reasonable and that a change would not result in a substantive difference in the decisions being made by the Task Force. However, some participants noted that it would be more difficult to reach an EITF consensus if a super majority or simple majority were required. While some participants recommended that a super majority of votes be required to reach an EITF consensus, the majority of those participants felt that alignment with FASB or PCC voting requirements (which are a simple majority and super majority, respectively) is not necessary. It is important to note that all decisions reached by the Task Force are subject to ratification by the FASB. Agenda Setting In past years, the EITF had its own Agenda Committee to recommend to the Board whether to add Issues to its agenda. However, the FASB s agenda prioritization process recently has evolved, allowing the FASB to take a landscape view of all potential projects and prioritize them to ensure the most pressing issues are addressed and resources are used 2 REVIEW OF THE EMERGING ISSUES TASK FORCE
most effectively. Consequently, the FASB has added projects directly to the EITF s agenda, sometimes without their consultation. The majority of participants agreed that the Board s agenda prioritization process is an important process improvement made by the FASB. However, many participants thought that the Task Force should still have a formal means to provide feedback on potential agenda items in advance of the FASB s decision on whether to add something to their agenda. EITF Composition and Term The Task Force comprises 10-15 members from various backgrounds, including the chair. They include various types of users, public and private company preparers, and auditors representing large and small firms. Most participants in the operating review thought that the current member composition was appropriate, noting that it is important to have a wide range of views and experiences from the different Task Force members. Likewise, each Task Force member is appointed to a five-year term that can be extended at the discretion of the FASB Chairman with no stated limit on the number of extensions. Feedback from participants was mixed on the appropriate term length and term limit. Support of EITF Activities Similar to its role in the FASB standardssetting process, the FASB staff is heavily involved in the EITF process. The staff performs research on each EITF Issue and prepares all necessary materials for EITF meetings. Overall, operating review participants supported the FASB staff s level of involvement and support of the EITF process. However, some participants suggested that utilizing EITF liaisons earlier in the process, clearly defining the scope of each Issue in the related Issue Summary, and promoting consistency in the discussions on effective date and transition would help to ensure efficiency in Task Force deliberations. Frequency and Length of Meetings As previously mentioned, EITF meetings are held approximately every two to three months. Extra meeting days also are available, if needed. Many participants discussed the need to address issues in a timelier manner and shared ideas on how the Task Force could promote that as part of their deliberations. In addition, several participants suggested that the FASB utilize shorter comment periods for proposed ASUs, while others suggested having more EITF meetings. Some also stated that they were open to longer meetings (more than one day in length) if the volume or urgency of issues warranted additional time. In addition, many EITF members supported the use of education sessions prior to decision-making EITF meetings. Working Groups Occasionally, the EITF will request to use outside resources or experts, referred to as working groups, to assist the EITF in the resolution of an issue that requires specialized technical knowledge or expertise. Working groups meet to discuss the accounting issues and formulate a recommendation for the EITF to consider at a subsequent EITF meeting. Participants generally were supportive of the EITF s overall use of outside resources and experts in its deliberations. Additionally, most participants agreed that it may be beneficial to have a working group member or other subject matter expert available at the EITF meetings to answer questions on a particular issue. REVIEW OF THE EMERGING ISSUES TASK FORCE 3
FASB Involvement with EITF While Board members do not vote at EITF meetings, they actively participate in the discussion and also are responsible for subsequently ratifying any consensuses reached at EITF meetings. The majority of participants (primarily Task Force members) noted that they appreciate the Board members opinions on issues and believe that their current level of involvement is appropriate. Most Task Force members would like all Board members to attend all EITF meetings, but others believe that it should be each Board member s choice. RECOMMENDATIONS Based on the feedback received from the operating review participants, the FASB staff believes that the EITF process is working as intended. That is, no broad changes are needed to the EITF s operating process. In addition, many participants acknowledged the deep technical expertise and broad range of experiences the Task Force brings to the standard-setting process. However, to maximize the EITF s contribution and ensure continued efficiency in executing the process, the FASB staff recommends a number of minor changes to improve the existing processes. The staff recommends that the Board utilize the EITF Agenda Committee in its agenda prioritization process. That is, the staff believes that the Board can benefit from leveraging the EITF s perspective and broad range of experiences when analyzing issues that are being considered by the Board for the EITF s agenda. Additionally, the EITF Agenda Committee could act as a conduit for identifying other potential practice issues. Regarding the issue of Task Force member terms, the staff recommends that a formal review of each member should be conducted prior to renewing that member for an additional term. The staff recommends no change to the current composition of members (users, preparers, auditors). In order to increase the efficiency of the EITF s standard-setting process, and to resolve issues in a timelier manner, the FASB staff recommends that the EITF utilize extra meeting dates for education sessions. Additionally, the FASB staff recommends that the FASB should shorten comment letter periods when appropriate, and that the FASB staff should leverage liaisons earlier in the Issue Summary process. In summary, the recommendations noted above have been discussed with the FASB, who agree with them. In concluding the review, the FASB staff emphasizes that, overall, the EITF s process is operating as intended and that the preceding recommendations will allow the EITF to operate more efficiently while increasing the value that the EITF provides to the FASB s standard-setting process. 4 REVIEW OF THE EMERGING ISSUES TASK FORCE