The Financial Accounting Foundation, or FAF, has announced that they are going to conduct a post-implementation review of FAS 123(R). In today’s blog, I take a look at what this might mean for the future of stock plan accounting.

What the Heck?

The FAF oversees and provides funding for the FASB, as well as several other entities involved in promulgating US accounting standards.  The FAF has recently begun conducting post-implementation reviews to evaluate the effectiveness of standards issued by the FASB (and also standards issued by GASB, Governmental Accounting Standards Board, which is the only other accounting standards board here in the United States–they aren’t just targeting the FASB).

You Can Take Your Aluminum Hat Off–They’re Probably Not Out to Get Us

Upon reading that the FAF is planning a post-implementation review of FAS 123(R), my first reaction was alarm. In the past, when various accounting authorities have reviewed US accounting standards on stock compensation, the outcomes haven’t been particularly favorable for those of us on team stock awards (notable examples include FIN 44, EITF 96-18, and, of course, FAS 123(R)). The FAF says (on its website) that standards are selected for a PIR based on “considerable amount of stakeholder input indicating that the standard might not be meeting its stated objectives.”

So I asked Bill Dunn at PwC about it and he put me in touch with his colleagues Ken Stoler and Pat Durbin (Pat is PwC’s national practice leader on standard setting). Ken and Pat don’t think the PIR signals any significant changes for stock plan accounting. They think that FAS 123(R) was selected for review merely because it is complex, pervasive, and has raised numerous practice issues–not because the FAF thinks there is anything wrong with the standard. They suspect that any changes that the FAF recommends will be minor and only in areas where divergence in practice has developed.

What Is a PIR?

According to the FAF website, the PIR has three main goals: to determine if the standard meets its stated objectives, to evaluate the standard’s implementation and compliance costs and benefits, and to provide feedback to improve the standard setting process.  The PIR team uses a variety of procedures, including reviewing the project archives, reviewing academic and other research, and collecting stakeholder input via surveys and interviews.  They then present their findings to the FASB’s chair and oversight committee. 

As I understand it, the PIR team doesn’t recommend any specific standard-setting actions, they simply point out areas of concern and it is up to the FASB to decide whether or not to take action. Which means that this is a loonnnng process.  First the FAF has to conclude the PIR, which takes a long time, and then the FASB has to act on their concerns, which takes even longer.  But, the silver lining for me is that it sounds like there could be fodder for several blog entries along the way, especially if the FAF finds any areas of concern (which surely they will–it’s a big standard).

Why “FAS 123(R)”?

My other thought upon reading this was to wonder why the FAF calls the standard “FAS 123(R)” when the rest of us have to call it “ASC 718.”  Because, frankly, it’s been a struggle to get used to the ASC 718 moniker.  If the FAF can call it FAS 123(R), I thought maybe the rest of us could too.  But, unfortunately, Ken doesn’t think we’ll all go back to calling it FAS 123(R) anytime soon.

– Barbara