FASB Proposes Updates to Clarify Interim Reporting Guidance
The Financial Accounting Standards Board (FASB) has issued an invitation to comment (ITC) as part of its ongoing research into financial key performance indicators (KPIs). Released on November 14, 2024, the ITC is designed to gather feedback from a broad range of stakeholders, including academics, accountants, auditors, lenders, and financial statement preparers, as the board evaluates the potential for standard-setting in this area.
For the purposes of this initiative, financial KPIs are defined as metrics derived from financial statements or underlying accounting records that are not explicitly presented in GAAP financial statements. These include measures like EBITDA, free cash flow, organic sales growth, and adjusted net income. While these KPIs are widely used by companies and investors to assess financial performance, their calculation methods often vary, leading to inconsistencies and challenges in comparability.
The ITC aims to address critical questions, such as whether financial KPIs should be standardized, and if so, which ones. Additionally, it seeks opinions on whether financial KPIs should be required or permitted to appear in GAAP financial statements, under what conditions, and for which types of entities. These questions are central to determining the scope and objectives of a potential project on financial KPIs. FASB’s previous outreach, including its 2021 agenda consultation, highlighted a strong interest in addressing this topic but also revealed diverse opinions on the extent and nature of the issues.
Stakeholders have until April 30, 2025, to provide their comments, offering a crucial opportunity to influence the board’s decision-making process. The feedback will play a vital role in shaping whether a project on financial KPIs is added to the FASB’s technical agenda and, if so, the framework for any resulting standards. By seeking input on this issue, FASB continues to explore ways to enhance the transparency and utility of financial reporting in an evolving business landscape.
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