Members of the Financial Accounting Standards Advisory Council (FASAC) expressed support for certain improvements to cash flow statements in an April 8 meeting in which they discussed the importance for FASB to improve various financial reporting areas. Council members had more mixed feelings about improvements to financial performance reporting and were skeptical of enhanced reporting related to environmental, social, and corporate governance disclosures.
Cash flow statements
Investors and other financial statement users considered improvements to the statement of cash flows to be a priority.
Regarding specific changes to cash flow statements, investors said they would like to see targeted improvements for financial institutions, such as requiring separate cash flow information for significant financial subsidiaries. Other improvements investors requested related to more detailed information on certain cash flow line items and greater consistency in the presentation of certain cash flow items within operating and financing sections. Further consideration should also be given to the classification of cash flows related to improvements to a company’s digital infrastructure, the group concluded.
Preparers were less enthusiastic about changes to cash flow statements, citing concerns about implementation and ongoing costs with changes.
Financial performance reporting
Council members considered a couple of changes relating to financial reporting. One potential change focused on whether certain income statement line items should be disaggregated either on the face of the income statement or through disclosure in the notes.
Investors saw some benefit in the extra information and increased transparency, but preparers again expressed concerns about the costs associated with the increased reporting. Individual Council members also observed that increased income statement disaggregation could require a company to present information that could result in a competitive disadvantage.
Another potential change discussed regarded whether certain non-GAAP financial metrics or key performance indicators should be standardized in GAAP financial statements. In this case, investors as well as preparers acknowledged that the changes could be challenging.
Some suggested a narrow approach focused on just a few metrics. Preparers suggested that even if FASB attempted to standardize some non-GAAP metrics, companies would continue to employ other ones when reporting financials.
Environmental, Social, and Corporate Governance Disclosures
The members of the council were less optimistic about improvements to financial reporting disclosures related to environmental, social, and corporate governance matters. While such improvements could provide some useful information for investors and other financial statement users, council members agreed it would be difficult to differentiate which environmental, social, and corporate governance matters directly or indirectly affect financial statements. Some members felt that such improvements would be beyond the scope of financial statements.
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