Key Points

  • According to an analysis by Jack Castonguay, an associate professor of accounting at Hofstra University in New York, the Financial Accounting Standards Board (FASB) is unlikely to consider tightening accounting rules regarding the treatment of personal financial statements under Generally Accepted Accounting Principles (GAAP) following President-elect Donald Trump's victory.
  • In August, Daniel Tinkelman, an accounting professor at Brooklyn College, City University of New York, wrote to the FASB requesting that the accounting guidance in Section 274 (Personal Financial Statements) be added to its reconsideration agenda. He noted that ambiguities and disagreements in interpreting the standard were key issues in the civil fraud case brought by New York Attorney General Letitia James against Trump, the Trump Organization, and executives including former Chief Financial Officer Allen Weisselberg.
  • "I don't think the FASB had a lot of interest in this before (the election), but... I predict that now it's basically a non-starter," Castonguay said in an interview. He noted that other regulatory agencies and departments, such as the U.S. Securities and Exchange Commission, also appear poised to scale back their regulatory initiatives under the incoming Trump administration.

In-Depth Analysis

In response to the agenda request, a FASB spokesperson said it would be "considered as part of our process," but declined to comment further.

Tinkelman said on Wednesday that he has not yet received a response from the FASB regarding the agenda item, although he has received a response to another request submitted on September 10—asking the board to reconsider the application of the last-in, first-out (LIFO) inventory method in financial statement reporting.

"Before the election, the FASB may have already considered this a sensitive topic. With Trump's election, it becomes even more sensitive," Tinkelman wrote in an email.

According to Tinkelman's letter, ASC 274 currently defines "estimated current value" as "for assets, the amount that an item can be exchanged for between knowledgeable, willing buyers and sellers, where neither party is compelled to buy or sell."

But Tinkelman believes the FASB should clarify what value it wants assets reported at in personal financial statements. He proposed four amendments to Section 274, including: replacing the term "estimated current value" with "fair value"; prohibiting the use of the term "net worth" unless the reported figures account for estimated taxes payable upon asset sale and liability settlement; requiring preparers to disclose changes in accounting methods; and clarifying the implementation guidance in ASC 274 to ensure that valuation methods do not "supersede the overall requirement of ASC 274 that assets and liabilities be reported at estimated current value (or fair value)."

Both Tinkelman and Castonguay noted that personal financial statements have never been a priority for U.S. accounting standard-setters. Therefore, even before the election, the likelihood of the FASB initiating such a project was low. Castonguay said that different frameworks, such as the cash basis or tax basis, can be used to prepare personal financial statements. "The problem is when you're switching back and forth between different frameworks," he said, citing how in Trump's recent civil fraud case, figures shown to tax authorities differed from those presented to banks when applying for loans.

In February, New York Judge Arthur Engoron ruled after a lengthy trial that the Trump Organization, Trump, and other named defendants used fraudulent financial statements that overstated the value of certain key assets to borrow more money at lower interest rates. As previously reported by CFO Dive, he collectively ordered them to pay over $300 million in penalties, which are accruing interest. Trump's lawyers have appealed the case. But according to an ABC News report on Tuesday, James's lawyers stated that the Attorney General plans to continue defending her judgment during the appeal, claiming that the president does not enjoy immunity in civil lawsuits.