Academic journal article Journal of Accountancy

Standard Setters Focus on Performance Reporting. (Highlights)

Academic journal article Journal of Accountancy

Standard Setters Focus on Performance Reporting. (Highlights)

Article excerpt

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are studying the usefulness of data contained in financial statements. Their objective is to increase the clarity of information available to users for assessing a business enterprise's performance.

Ronald J. Bossio, a senior project manager at FASB, said, "We have to decide whether to rearrange the presentation of items, perhaps adding more meaningful detail and eliminating items that may be unnecessary. There isn't much GAAP guidance on financial statement display, and many of today's conventions have evolved without standards."

He strongly advocated using multiple criteria to evaluate businesses' financial performance. "Financial statements should give creditors--not just investors--the information they need. For some people, earnings are an adequate performance measure, but creditors also look at liquidity." Depreciation, amortization and research and development expenses are other examples of items FASB said may be necessary to calculate ratios and other measurements needed to accurately evaluate a business's financial performance.

The project has particular importance, Bossio said, due in part to FASB's support for measuring financial instruments at their fair value. "We measure inventory items at the lower of their cost or market value until they're sold, but each day we assign a new fair value to many financial assets. So some think financial statements should better distinguish between changes in value that occur when assets are exchanged in a sale and changes due to variations in an item's value that occur even when a transaction doesn't take place."

The FASB project will not study management's discussion and analysis or pro-forma earnings reported in press releases or other communications that do not involve financial statements. …

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