Letter to FASB on Proposed Accounting Standards Update (Subtopic 220-40)

Dear Ms. Salo:

The American Bankers Association (ABA) welcomes the opportunity to comment on the Proposed Accounting Standards Update—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (the Exposure Draft or ED). Representing both preparers and users of financial statements, we appreciate the Financial Accounting Standards Board's (FASB's or the Board's) continuing efforts to address specific concerns raised by investors related to details of certain expense items, as the Exposure Draft requires detailed disclosures of specified categories within expense line items on the income statement. The ABA appreciates the practical expedient to use the definition of salaries and employee benefits currently required in SEC Regulation S-X Rule 9-04 rather than change to comply with the new proposed requirements in Par 220-40-50-4(b). The practical expedient demonstrates the ability of the Board to set standards that will enhance transparency for investors while limiting some unnecessary cost to the banking industry, which is already subject to well understood requirements that meets the needs of the users of bank financial statements.

The provisions in the Exposure Draft mandating the breakdown of financial statement line items into natural expenses do not offer discernible benefits for users of bank financial statements. Instead, these proposed requirements entail additional costs for all stakeholders in relation to bank financial statements. As highlighted in the recent Financial Accounting Standards Advisory Council (FASAC) meeting on September 21, 2023, the inclusion of information that lacks clear benefits poses a cost to users. An illustrative statement reads:

"...investors within the user Community, you want to keep in mind that having too much information, there is a cost to that, so namely...you might need more technology to...deal with more information, and then you might need more people because you get slowed down by having so much information you need to analyze."

In a separate example, a prominent banking industry analyst maintains a list of pages of current required disclosures that are viewed as unnecessary or redundant. The volume of information is especially pertinent to the banking industry. An analysis of the most recent 10-K filings for the largest U.S. companies by market capitalization reveals that banks' 10-K filings are on average twice as lengthy compared to those of other industries and Item 8 which contains the audited financial statements are more than two and a half times as long. As preparers of bank financial statements already carry a disproportionate financial reporting burden.

In regard to this project, FASB has demonstrated a recognition of the cost benefit analysis specific to the banking industry and sought to reduce the cost impact with the practical expedient. Concurrently, ABA recognizes FASB obligation to weigh that within the context of the benefits to users on the whole. As the Board proceeds in addressing user needs in future projects, FASB should consider not only the benefits and costs to specific user communities but also all other available tools within the US disclosure regime to efficiently and effectively meet those needs.

ABA believes that U.S. GAAP need not be the sole source of new standard setting in meeting financial statement user needs. Given the unique requirements of various industries and FASB's principle-based approach, relying solely on U.S. GAAP may not be the most efficient or effective means of providing industry specific financial information. The ABA appreciates feedback from numerous users of financial statements in diverse industries who express the need for more detailed income statement expense information. Conversations in open FASB forums have yielded numerous examples of these needs, which predominantly pertain to specific industries. In cases where these needs involve information disaggregation and other disclosure purposes, the ABA recommends that the Securities and Exchange Commission (SEC or Commission) explore the Commission's rule-making authority under Regulation S-X and S-K to establish industry-specific disaggregation and disclosure requirements that are more streamlined and cost-effective.

In the banking industry, SEC Regulations S-X Rule 9 and S-K-1400 already set forth robust disaggregation and disclosure requirements tailored to the banking industry. Implicitly, these specific requirements do not provide benefit to non-bank financial statement users. Therefore, confining these requirements to banks meets the needs of users of bank financial statements without unduly affecting other industries. A similar targeted approach on an industry-by-industry basis can be considerably more effective in addressing certain user needs.

Thank you for considering these comments. If you need additional information or have questions, please contact me ([email protected]; 202-663-5318).

Sincerely,
Joshua Stein