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Toward a Simpler GAAP
IN BRIEF
In recent years, FASB has made a priority of removing unnecessary complexity from FASB's accounting standards. The author gives a detailed accounting of completed and ongoing projects in FASB's Simplification Initiative, along with an assessment of its future.
Conducting business in today's global environment has become increasingly difficult and complex, and accounting standards are no different. Indeed, both financial statement preparers and users have expressed views that current generally accepted accounting principles (GAAP) are often unnecessarily complex. Preparers complain of overload and excessive costs, and investors and creditors argue that complex financial statements obscure important information and inhibit sound investment and credit decisions. These concerns have been echoed by many, including FASB Chairman Russell Golden, who recently stated that "complexity in accounting is costly for both investors and companies" (Remarks at the AICPA Conference on the SEC, PCAOB, and FASB in Washington, D.C., Dec. 9, 2014).
To address these concerns, FASB has undertaken an initiative to reduce die costs and complexity of GAAP while maintaining or enhancing the quality and usefulness of information. This Simplification Initiative was launched in May 2014 and entails making narrow-scope simplifications that can be accomplished relatively quickly. By tackling targeted areas of complexity, FASB hopes to provide cost savings to both preparers and auditors. In addition, more straightforward guidance may improve the usefulness and relevance of information to financial statement users by making it easier to understand and compare information across companies.
Completed Projects
In the past year, FASB has completed nine different simplification projects. These projects, along with their expected effective dates, are shown in the Exhibit and detailed below.
Extraordinary items. One of the first issues addressed was the elimination of the concept of extraordinary items from GAAP. This is expected to save preparers both time and money by avoiding the extraordinary item assessment process and alleviating uncertainty for auditors and regulators. In addition, there should be no loss of information, because the requirement that items of an unusual or infrequent nature be presented separately from continuing operations was retained. Thus, financial statement users should still be able to identify relevant events or transactions without the extraordinary item classification In addition, no significant effect on financial reporting is expected due to...