Message from the FAF Chair and FAF Executive Director

In 1972, a seven-person group was formed to study the establishment of accounting principles in the United States and to make recommendations for improving that process. At the time, corporate financial reporting practices and a part-time board closely tied to the accounting profession that set financial accounting standards were deemed inadequate to meet evolving investor needs. The Wheat committee, named for its chairman, former SEC Commissioner Francis M. Wheat, concluded there was an urgent need to establish a new and more independent organization to lead financial accounting standard setting in the United States. The first step recommended by the committee was the creation of the Financial Accounting Foundation (FAF).

Under the structure proposed by the Wheat study, the FAF’s initial task, completed in 1973, was to establish the Financial Accounting Standards Board (FASB), a full-time body to create and improve financial accounting standards that provide useful information to investors and others who rely on accurate financial information. The success of FASB’s work and its robust, inclusive standard-setting process led to the creation in 1984 of a companion Board, the Governmental Accounting Standards Board (GASB), to establish accounting standards for state and local governments. Under FAF oversight, the FASB and GASB produce and continue to refine financial accounting standards that serve as a model for the global community.

For 50 years, this structure—expert Boards operating independently, representing diverse perspectives, appointed and overseen by the Financial Accounting Foundation—has served investors and other users of financial statements well. Through its oversight of the standard-setting process and its own outreach, our Board of Trustees seeks to ensure that the FASB and GASB engage continuously with diverse stakeholder groups. Feedback from these groups is at the heart of the standard-setting process, informing the Boards’ decision making from the outset of a new project through implementation of new standards and beyond. This open, transparent process underpins the strength of Generally Accepted Accounting Principles, or GAAP.

The FAF Trustees understand how important it is to safeguard the integrity of the independent standard-setting process, and to provide the staff and Boards with the tools they need to continue this vital work. Our multiyear technology investments proved essential during the pandemic. They not only enabled staff to continue to meet the needs of our stakeholders while working 100% remotely, but also improved the ability of the Boards to draft and publish standards more efficiently. Additionally, we continue to explore new ways for stakeholders to remain connected and provide feedback through multiple communications channels.

We spent much of the past year engaged in a strategic planning process led by FAF Vice Chair Mary Barth. That process has included in-depth interactions with stakeholders to help us shape priorities that will guide our organization for the next several years. The draft strategic plan was released for public comment in the spring of 2022, and we expect to complete and publish the final document later this year.

We also completed the second year of our initial three-year Diversity, Equity, and Inclusion (DEI) plan for our organization. During the year, we expanded DEI training for our employees, increased our outside partnerships with DEI-focused organizations, and increased the percentage of our hiring slates that included underrepresented minority candidates. We still have much work to do in this area, and we will continue our efforts in 2022.

We bade farewell in December to the FAF Trustees whose terms ended last year: Susan J. Carter, T. Eloise Foster, and Anthony J. Dowd. We also welcomed our new Trustees: Manju Ganeriwala, Edward J. Goldthorpe, W. Bryan Lewis, and Diane C. Nordin. We are grateful to all these leaders for their service and for being part of what is now a 50-year tradition of our important mission.

The members of the Wheat committee understood two things well: the best financial accounting standards emerge from a process that is inclusive and transparent yet independent, and those who set the standards will face near-constant pressure to tailor those standards to serve particular objectives or favor one interest or another. Their recommended model established the FAF as the independent board with the responsibility to appoint the standard setters and to hold them accountable, while protecting the integrity of the process from undue influence. The result is a body of work that has benefited investors, other stakeholders, and the public interest. While we are humbled by our responsibility and are aware that we must continuously strive to prove worthy of it, we are also proud to carry this legacy forward.

Sincerely,

Kathleen L. Casey, Chair

John W. Auchincloss, Executive Director

Message from the
FASB Chair

The FASB has worked over the past 49 years to continually earn our independence by engaging in a robust, inclusive process that built the comprehensive body of GAAP we have today. That extensive body of work means there are few financial reporting topics that haven’t already been addressed in GAAP. While there will always be a need to improve and update that guidance, it’s also the right time to ask, “Where do we go from here?”

While we, as the standard setter, ultimately decide what to work on, we perform broad outreach with our stakeholders to help identify and prioritize what’s on our agenda. As part of our agenda consultation project in 2021, we did just that.

During the first half of the year, FASB members and staff met with 200+ stakeholders—more than 70 of them investors or other financial statement users, including all our advisory groups—to hear their views on what the FASB should take on next. We summarized what we learned in our Invitation to Comment (ITC), which gave all stakeholders the opportunity to weigh in on these views or any others they may have. The response has been tremendous.

Since late 2021, the FASB has been actively addressing that input and prioritizing areas of significant investor feedback. To date, we’ve incorporated that feedback into current technical agenda projects on disaggregation of income statement expenses and targeted improvements to income tax disclosures.

I also made changes to the FASB’s research agenda, adding projects on topics identified through the agenda consultation process. They included projects on digital assets, intangibles, government grants, and accounting for financial instruments with environmental, social, and governance (ESG)-linked features and regulatory credits. We are in the process of bringing the results of that research to the Board to help determine if there’s an achievable path to standard setting on these issues and if they should be added to our technical agenda. We also are continuing to explore input we have received on other topics as part of the agenda outreach process.

To make room for these potential new projects, in 2021 we continued to work through existing projects on the technical agenda. We finalized nine new standards and published six proposed standards for public comment, including our eagerly awaited proposal to help investors and other allocators of capital better consider the effect of supplier finance programs on a buyer’s working capital, liquidity, and cash flows, which we expect to finalize in the first half of 2022. Additionally, we issued two new chapters of our Conceptual Framework on financial statement elements and presentation.

In 2021, we continued to improve standards through our post-implementation review (PIR) process. That process resulted in new guidance, including a standard on recognizing and measuring contract assets and contract liabilities in a business combination to help investors and other financial statement users better understand the financial impact of these acquisitions. We also improved discount rate guidance for lessees that are not public business entities—including private companies, not-for-profit organizations, and employee benefit plans. And we took what we learned from our May 2021 credit losses roundtable and other stakeholder outreach to take fresh looks at the accounting for acquired financial assets and the troubled debt restructuring expected loss model.

While our Board members bring different backgrounds and approaches to our work, we are united by one mission: to improve accounting and financial reporting standards so that they provide investors and other allocators of capital with information that helps them make decisions. Investors don’t all speak with one voice, so we conduct extensive, proactive outreach with a wide range of financial statement users.

Our first FASB Investor Outreach Report describes how we did that over the year ended June 30, 2021. The report highlights how we engage investors in the standard-setting process and incorporate their diverse input to provide information that will help “reasonable investors” make better-informed decisions. For example, the FASB staff had more than 430 investor interactions over the year—even as many stakeholders were still dealing with the effects of the pandemic. Substantially all those interactions were the result of FASB-initiated outreach aimed at soliciting a wide range of investor perspectives.

As I write this in early 2022, our colleagues at the one-year older Financial Accounting Foundation are celebrating the Foundation’s 50th anniversary. We congratulate and thank the Foundation’s Trustees and staff for their commitment to safeguard and support the independent standard-setting environment that enables the FASB to do our best work.

I want to thank my colleagues on the Board and staff for their contributions to what has been an extremely productive and exciting year. I also wish to thank all our stakeholders, past and present, whose input makes our work possible and challenges us to develop the best standards.

Sincerely,

Richard R. Jones, Chair

Message from the
GASB Chair

The Governmental Accounting Standards Board (GASB) made significant progress developing and improving high-quality accounting and financial reporting standards in 2021.

The GASB offered virtual events to gain direct stakeholder feedback on two related major projects:

• The Financial Reporting Model Reexamination, which looks at what information financial reports should present in the future
• Revenue and Expense Recognition, which considers how revenues and expenses should be recognized within the model.

A third companion project, the Disclosure Framework, considers what information should be disclosed to allow stakeholders to gain a complete understanding of the model and related recognition concepts.

Stakeholder input the Board received through hundreds of written comments and the direct dialogue with dozens of participants in the virtual events informed Board discussions on these issues throughout the year and into 2022. While documents in the first two projects will take longer, the Board plans to issue a Concepts Statement on the Disclosure Framework in the 2nd quarter of 2022.

Ultimately, these “Big Three” projects will redefine and significantly improve accounting and financial reporting for state and local governments across the United States.

The Board responded to stakeholder feedback to rename the Comprehensive Annual Financial Report. Stakeholders brought to our attention that the pronunciation of the acronym for the Comprehensive Annual Financial Report sounded the same as an offensive term for black South Africans and those of the Muslim faith in some jurisdictions.

The report is now called the Annual Comprehensive Financial Report. We believe the change sends an important message: Inclusiveness is one of our key values. We are very pleased to see how quickly many stakeholders have adopted the new terminology.

In 2021, we began a focused effort on leveraging technology to drive improvements in our work. For example, we developed new methods to engage stakeholders and allow them to provide feedback on due process documents. This allows the Board to use tech to make it easier for stakeholders to share input and ideas with us. More specifically, within the Accounting Changes and Error Corrections project, we piloted a new electronic feedback form to allow stakeholders to share their ideas with us quickly and easily. We plan to continue the pilot and to consider adding new elements when the Board issues a proposal on Risks and Uncertainties Disclosures later this year.

An Important Milestone in Independent Standard Setting
In 2022, we commemorate the Financial Accounting Foundation (FAF) for 50 years of supporting independent standard setting in the United States.

Building on its success in establishing the Financial Accounting Standards Board in 1973, the FAF began to create a path forward for the creation of the GASB in the early 1980s. This culminated in a 1984 agreement with the founding governmental stakeholder organizations to “establish guidelines for financial accounting and reporting by state and local governmental units” and the GASB was born.

Charles G. Steele, FAF vice president and chairman of its special committee on the GASB, said on the occasion, “The need for the GASB has received widespread recognition for a long time… I am extremely hopeful that [it]… will lead to greater confidence in the financial processes of government.”

The Board believes Mr. Steele got his wish. Today, the Generally Accepted Accounting Principles developed by the GASB are considered the gold standard in accounting and financial reporting for state and local governments.

We salute the FAF for its resolve and vision in establishing the paradigm that has resonated across the globe for 50 years, which continues to serve as the model for the world as we look to the future.

Thank You to the GASB Staff
I want to conclude with a word of thanks to our amazing and talented staff with whom I am privileged to work alongside every day. In this second year of the pandemic, they took on every challenge the world had in store and responded with real professionalism. Our mission truly makes a difference and they saw their duties through with dedication and heart. They make me deeply proud to be a part of this organization.

Sincerely,

Joel Black, Chair