EmergingIssues Task Force
TheEmerging Issues Task Force was developed in 1984 with an aim ofaddressing the recommendations of the task force of FinancialReporting Standard Board (FRSB) through timely financial reportingguidance and invitation of comments from various backgrounds. Themission of Emerging Issue Task Force is to assist the FASBidentifying, discussing and solving the financial accounting issuesin the conceptual framework of accounting to improve the financialreporting process. The EITF (Emerging Issues Task Force) was formedto broadcast the execution of the accounting standards codificationframework to minimize the diversity. It minimizes the time spent byFASB in addressing the emerging issues that may arise in the existingGenerally Accepted Accounting Principles (GAAP). The task forcemembers are drawn across various constituencies of the FASB (Kieso &Ewygandt, 2011).
Theteam is designed to ensure that it includes members who are aware ofthe emerging issues even before they are widely spread and becomeentrenched. After identification of the issue, the matter is debatedon, and appropriate recommendations are developed. If the Task Forceis unable to come to a consensus, the FASB is allowed to intervene. Aconsensus is approved if no more than members present in the meetinghave rejected the proposed recommendations. The meeting of Task Forceis made open to the general public to attract professionals fromdifferent settings for their contribution. The final position reachedis published in the Financial Accounting Standard Board in AccountingStandards Codification (ASC) (Kieso & Ewygandt, 2011).
EITFhas addressed various areas that are likely to have an impact on thefinancial reporting process. Some of the emerging issues addressed byEITF include the following
a)Reclassification of the collateralized residential real estateconsumer on mortgage loans.
Thenumber of abandoned residential properties has resulted in manyissues in the housing markets. The banks and lenders have developedhigh levels of the foreclosed real estate. Due to this extendedprocess of foreclosed real estate, more recommendations have to beset to address the issue. However, physical possession is not definedin the available literature in accounting. The timing of theapplication of reclassifying the mortgage loan receivable and othercollateralized residential real estate.
TheEITF reached agreed that the guidance in the recommended update wouldrelate to the collateralized loans obtained. The Task Force disclosedthat there is a need for repossession or foreclosure and isconsidered to take the full physical possession the property securingthe loan. The creditor is reclassified legally to obtain the title ofthe real estate property. On completion of the deed in lieu, legalagreement and foreclosure are covered by the borrower to testify theloan even if the legal title has not yet passed.
EITFrecommended that creditors are needed to disclose the residentialproperties used to secure a mortgage loan and the amount of theconsumer’s mortgage loans. It also recommended that the creditorsshould seek a physical possession of the property securing the loan.Entities are also required to apply for amendments in modification ofthe proposed foreclosures for the loans issued prior to the date ofaddressing this emerging issue. The task force agreed to permitadoption of the proposed amendments to cab the diversity existing inpracticability. During their meeting, the Task Force ratified theexposure and the implementation of the issuance of the proposedupdates and a period of 60 days to invite comments from the public.
Theissue of collateralized mortgage loans and diversity has triggeredthe need for extended foreclosure and legal safeguarding afforded byresidential borrowers. The Task Force decided to provide sufficienttime for both public and non-public compliance of the entities.
Inmy opinion, this recommendation provided by the Task Force is veryimportant, and it would help to solve many problems that arise in theaccounting system. The reclassification of the collateralizedresidential real estate consumer on mortgage loans will also assistin improving the consistency in the real estate market. This is dueto the reduction in diversity in the accounting standards. It willalso make the financial reporting process less complicated (Eugene &Michael, 2008).
b)Share-based payments award accounting
Anissue arises when the terms of payments provide that a particularperformance target have to be achieved during a specified period. TheTask Force addresses the issue of the set targets of performance andthe conditions that are most likely to affect the fair value of anentity. The Generally Accepted Accounting Principles (GAAPs) providesthat the financial statement of the entities should represent a trueand fair view of the firm. This is a similar case to when theperformance targets are achieved over the requisite service periodwith no forfeiture of the award. The study indicates that there isdiversity in the practice of about whether the performance targetsfairly treated. It is also essential to consider the conditionsaffecting the vesting of the award. This is because the grant date ismostly affected by the non-vesting conditions and hence compromisingwith the fair value of the awards.
TheTask Force recommend that such award should be regarded as aliability in accordance with GAAP. The majority of the members inEITF meeting revealed their support for the performance target’streatment and the conditions to be expressed. This will make thegrant date less complex as compared to the non-vesting approach.However, several, Task Force members and other members in FinancialReporting Standard Board addressed their concern saying that theapproach might weaken the main principle resulting to differentapproaches other than the ones recommended in the InternationalFinancial Reporting Standards (IFRS). The Task Force directed thepublic to undertake additional analysis on this issue to assist inthe decision-making process and coming up with appropriaterecommendations.
TheTask Force also agreed on the additional outreach to analyze thepreviously requested issue. The team recommended for the amendmentsin the proposed position to grant the stakeholders a share-basedpayments in the terms of the award so as to provide measurableperformance targets. The amendments recommended by the EITF wouldhelp to ensure the required effective disclosures to govern theshare-based payment awards that could be modified after theireffective date.
c)Presentation of an Unrecognized Tax Benefit for net operating losses
Theother emerging issue is the issue concerning the presentation of theunrecognized tax benefit for the net business operating loss. Thecarried forward net operating losses reduce the tax liability for theunrecognized tax benefit. The law in the United States allowsbusiness owners to recoup the operating losses from the tax payable.The International Reporting Standards does not require some taxpositions to be settled in cash so as to eliminate additional taxableincome. However, in most nations the law provide a maximum limit offinancial years the losses can be carried forward. Beyond this limit,the firms can no longer claim the tax refund benefit.
Theemerging issue here is how the firms should record the liability forthe unrecognized benefit in their financial statement so as to reducethe amount of the deferred tax in relation to the net operating lossas provided in the tax law. The Task Force recommended that theunrecognized tax benefit should be presented in the statement offinancial position as a reduction in the deferred tax asset in carryforward operating loss unless for certain prescribed conditions. TheTask Force decided that there would be no additional disclosureswould be required for this issue since the amendments do not have anyimpact on the recognition of the tax position that cannot beprojected with certain. The gross amount of unrealized tax benefitprovides the financial users with relevant information concerning theoffset of unrecognized tax benefit. The Task Force, therefore, playeda role in permitting an early option of appropriate amendments toeradicate the already existing diversity in practice.
Fromthe above issues, we can deduce that the Emerging Issues Task Forcehave played a great role in addressing the factors that are morelikely to have an impact on the financial reporting process. It hastherefore helped to improve the consistency of the reporting systemby minimizing the diversity in the accounting profession.
Thestudy has also revealed that Task Force should adopt a one global setof standards to govern the field of accounting. By doing so, it willhelp on improving the consistency of the financial reporting process.The International Financial Reporting Standards has also played agreat role in addressing the emerging issues in accounting field.Most stakeholders will need the information about the emerging issuesin financial reporting, and the Task Force is always there to addressthe issues (Kieso & Ewygandt, 2011). It also gives thejustification of the amendments made in the financial reportingprocess.
Theapplication of Generally Accepted Accounting Principles (GAAP) is TheUS has supported the existence of the Task Force since it isessential in addressing the issues affecting the accountingprofession. As said earlier, EITF assists the Financial AccountingStandard Board in improving the reporting process through timelyidentification and resolution of issues in the accounting framework.The team, therefore, spares time for the board to carry out otheractivities that could be having more impact on the accountingprofession. It is also important to give time to the general publicto collect their views and comments before coming up with aparticular position concerning the emerging issue. This wouldincrease the acceptability of the recommended position and hencefacilitating their implementation. The public should be given aperiod of at least 60 days to give their views. However, thisduration may differ depending on the urgency of the issue. That is,those issues that they may require quick attention may allow aminimum of 30 days of public comment or even be approved by theFinancial Accounting Reporting Standard Board directly without goingthrough the public comment phase.
Kieso& Ewygandt. (2011). Intermediate Accounting 4th Edition. NewYork: Three Rivers Press
EugeneB. & Michael E. (2008). Financial Management: Theory &Practice Brazil: Amazon.
FASB.(2015). Emerging Issues Task Force. Retrieved July 18, 2015, fromInvestopedia: http://www.fasb.org/eitf/eitfissu.shtml