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Pandemic Response Center Stage as Accounting Chief Departs

June 24, 2020, 2:01 PM

Russell Golden became the top U.S. accounting rulemaker in the aftermath of the 2008 financial crisis, a time when the Financial Accounting Standards Board set out to fix the accounting problems the market meltdown laid bare. Golden leaves at the height of a new crisis, a global pandemic that could reveal even more problems.

The economic whiplash from the coronavirus is sure to set the stage for the next round of changes to U.S. accounting rules and it will test the strength of existing ones. A new standard for reporting souring loans that is rolling out now takes on added significance as businesses shutter and unemployment spikes. Older rules on reporting hits to goodwill and assessing the ability of a company to stay afloat also are being tested on whether they help investors glean information during uncertain times.

“The issues are different, but the process is similar,” said Golden, 49, reflecting on the two periods of upheaval in an interview before he leaves the accounting board June 30.

His advice to his successor, Richard Jones: “Be open minded to a range of perspectives,” Golden said.

Major Work

Gathering a range of perspectives is how FASB operates.

Located in Norwalk, Conn., away from the markets in New York and the politics of Washington, FASB is an independent, private sector organization tasked by the Securities and Exchange Commission to write generally accepted accounting principles (GAAP).

The process to write these rules is deliberately careful, even glacial at times. It’s the reason why FASB’s chief response to the 2008 financial crisis, the current expected credit loss (CECL) standard, went live for public companies this year, almost a dozen years after the collapse of Lehman Brothers.

And even that rollout got threatened by bank lobbying and Congressional intervention. The third coronavirus relief package, signed into law in late March, gave banks fearful of front-loading credit losses the option to defer the new accounting rule until year-end or until the national emergency related to the pandemic is declared over, whichever comes sooner. (Public Law 116-139)

It was the first time Congress successfully thwarted the work of FASB. Golden was pumping gas in his car when he got the call that the optional delay was going into the final package.

There were less dramatic moments in Golden’s career, too. FASB’s multi-year project to overhaul revenue accounting got published on Golden’s watch. So did an overhaul for lease accounting, a move that put billions of dollars worth of rented real estate, heavy equipment, and vehicles on the U.S. company balance sheets for the first time.

Not-for-profit groups got their first accounting update in two decades with the publication in 2016 of rules aimed at more transparency into their finances. In 2018, FASB published new rules for insurance companies selling long-term policies like life and annuities. Notoriously complex derivative accounting rules got a big simplification in 2017 with a hedge accounting update.

Hard Part Comes Now

FASB’s work doesn’t end when it hits “publish” on a new standard.

Big-ticket standards rarely remain as is. The board fields questions, tackles complaints, and adjusts if necessary. Monitoring the major standards will be a top priority for the board going forward, Golden said.

The leases standard is a prime example of unexpected questions popping up after publication. Public companies reported two major headaches: identifying hidden or embedded leases took more work than they expected, as did coming up with the right discount rate to calculate the final lease liability.

FASB was supposed to convene public companies and their accountants in April to talk about whether the standard needed tweaks before private companies have to comply in 2022. The pandemic scuttled those plans. This meant there was no chance to discuss a simpler way to come up with the discount rate.

“Clearly, the lease obligation should be discounted but there are other areas of GAAP, specifically pension accounting and insurance accounting where we have a practical way to come up with a discount rate,” Golden said. “And I felt we could do something simpler here.”

Crystal Ball

Golden said he has no regrets from his time on FASB, but he wished FASB had time to tackle the complexities of accounting for inventory. Companies use a variety of methods to tally the value of raw materials and finished goods and he said it was an area that could get simplified.

If he had a crystal ball this time last year, he also would have prioritized working on requiring companies to disclose the government assistance they receive. U.S. GAAP contains no guidance on reporting tax breaks and low-interest or forgivable loans governments offer companies.

FASB released a proposal in 2015 that would have made businesses reveal key details about incentive packages to build new headquarters or make new hires. The plan drew stiff opposition from companies and the project lingered on FASB’s back burner.

Since then, the government has offered cash-strapped businesses trillions of dollars worth of forgivable loans to meet payroll and make utility or rent payments during the pandemic. This prompted questions not only about how to account for these loans, but scrutiny from investors who feared little to no details on these cash infusions.

“A year ago there was a lot less government assistance than there is today, and it wasn’t a priority,” Golden said. Now “it clearly is a priority for investors.”

Next Moves

Working for FASB has been a central part of Golden’s career. He joined FASB’s technical staff in 2004, got appointed to the board in 2010 and rose to the chairman seat in 2013. Prior to settling in for 16 years at FASB, Golden was a partner in the national office at Deloitte & Touche LLP.

His next move isn’t clear. He’d like to take some time off and then look for some corporate board work or pursue academic projects, he said.

But before that, he has a more pressing task: driving his son to his freshman year of college in the fall—as long as the pandemic doesn’t get in the way.

To contact the reporter on this story: Nicola M. White in Washington at nwhite@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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