Senate Floor Analysis for AB 1181 posted on August 21.

Next step for AB 1181: roll call on floor of Senate. Image courtesy of Adobe Stock.

Analysis of AB 1181, which will be used for the vote on the floor of the California Senate, was posted yesterday, August 21. This follows the bill being read the second time on August 20 and moving out of the Appropriations Committee on August 19. You can download the analysis if you are so interested.

I don’t understand the timing of when votes are called. What I have learned is the next step after the second reading and printing the floor analysis is the vote. Stay tuned.

Oh, as an aside on whether the Assembly and Senate might resolve differences in the bills approved by the different chambers, I had an insight yesterday. Back on 8/12/19, the Senate Appropriations took action. It was reported as:

From committee chair, with author’s amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on APPR.

The ‘aha’ moment for me was realizing the Senate committee processed changes by the author, who is an Assembly member. Methinks that means the bill has a pretty good chance of sailing through the Assembly, assuming the Senate approves it.

Some comments on the floor analysis…

Most of the commentary will be familiar to those closely following the bill.

The last two paragraphs of the analysis are quoted with my comment following.

Last half of the second to last paragraph says:

(The parent of FASB, Financial Accounting Foundation’s) … concern with this bill is that it creates a unique reporting requirement for California that is “in contradiction to GAAP standards” which undermines the efficiency and ease of use of having a national set of accounting standards. FASB has added a project to its formal research agenda on the reporting of gifts-in-kind and stated that a final Accounting Standards Update could be issued, after a specified process, as early as the first half of next year; however, it is unclear what changes FASB may make to GAAP regarding reporting of gifts-in-kind.

The floor report is dated 8/21/19 with time of 10:07 a.m. The reference to an item being in the research agenda phase was the status before the FASB meeting yesterday. In that meeting the board agreed to add the issue to its technical agenda, which is the next step in the standard setting process.

I am not aware where FASB has stated a final ASU might be out by end of second quarter of 2020. From my experience that would be a rather fast turnaround for FASB.

Chairman Golden did make a side comment during meeting referring to possibility of approving draft in October. That suggests an exposure draft might be out this fall.

After the FASB meeting on 8/21, we know the exposure draft will not include any changes to measurement (that means no change to valuation methodology) but will instead only address disclosures and presentation (that means how items are combined or broken apart into detail on the statement of activities).

See link below to view a recording of the meeting.

My perception is the core concern of the California AG and the rather obvious point of AB 1811 is valuation of medical GIK. My perception is those core concerns will not be addressed by FASB’s project given the scope that was explicitly defined on 8/21/19.

Final paragraph of the staff analysis says:

As noted in the Forbes article, this issue has been identified for many years and FASB did not take any steps to address the issue until this bill was introduced. It is true that having a national accounting standard leads to efficiency and ease of use; however, these are not compelling policy reasons to allow the continuation of a misleading and unfair practice, especially in light of the special benefits derived from being organized as a nonprofit organization. The fact this practice is allowed under GAAP is the problem, and why this bill seeks to deviate from GAAP in theses limited circumstances.

On the issue of how long FASB has known of these issues, at the 49 minute point of the meeting on 8/21/19 (see link below), Jeffrey Mechanick, FASB staff member, explained discussions back in 2012 were raised by preparers and auditors on technical questions of how to apply fair value accounting. Primary med discussed at that time was mebendozole (a deworming medicine). Other discussions back then were the propriety of daisy-chaining.

He went on to explain FASB staff learned of the current issue in December 2017, when a NAC member raised the issue based on what he had heard at NASCO meetings and other meetings. In July 2018, NASCO sent a letter expressing their concerns to FASB, which was the first official notice of the issue to FASB.

Listed as supporting the bill is the California Attorney General.

Listed as opposing the bill are AICPA, CalCPA, California Board of Accountancy, National Association of State Boards of Accountancy, four trade associations, and 49 charities.

You can check out the 8/21/19 FASB meeting for yourself:

 

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