EITF's Mission, Effectiveness, and Impact on FASB Standards
This paper examines the Emerging Issues Task Force (EITF) and its influence on the Financial Accounting Standards Board (FASB). It analyzes the EITF's mission, its effectiveness in resolving emerging accounting issues through its consensus-based voting process, and recommendations for improvement. Using EITF Issue No. 15-F — Classification of Certain Cash Receipts and Cash Payments — as a case study, the paper explores how EITF guidance affects corporate financial reporting, compares GAAP and IFRS treatments of cash flow classification, and argues in favor of the EITF's recommendations on contingent consideration payments and equity method investment distributions. The paper concludes by predicting the roles EITF and FASB would play under a single global set of accounting standards.
- The EITF's Mission and Its Influence on the FASB: EITF's founding purpose and effect on FASB workload
- EITF Effectiveness and Recommendations for Improvement: Consensus voting strengths, weaknesses, and reform proposals
- Key Areas Addressed by EITF Issue No. 15-F: Cash flow classification guidance for distributions and acquisitions
- Impact on Corporate Accounting and Financial Reporting: How EITF guidance shapes company-level financial statements
- Argument in Favor of the EITF's Recommendations: Supporting the EITF position on cash payment classification
- GAAP vs. IFRS: Differences in Cash Flow Classification: ASC 230 and IAS 7 compared with convergence recommendations
- EITF and FASB Roles Under a Global Accounting Standard: Predicted roles if one global accounting standard is adopted
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What makes this paper effective
- Each section directly responds to a specific analytical prompt, keeping the argument focused and well-organized throughout.
- The paper grounds abstract concepts in a concrete EITF issue (Issue No. 15-F), giving practical weight to theoretical discussion of the task force's function.
- Recommendations are consistently justified — the author does not simply list suggestions but explains why changes such as majority voting or fewer meetings would lead to better outcomes.
Key academic technique demonstrated
The paper demonstrates comparative analysis by placing U.S. GAAP (ASC 230) alongside IFRS (IAS 7) to highlight structural differences in cash flow classification. Rather than merely listing distinctions, the author uses these differences to contextualize why EITF guidance matters and what improvements would benefit international convergence. This technique strengthens the argument for the EITF's recommendations by situating them within a broader regulatory landscape.
Structure breakdown
The paper follows a clear seven-part structure: it opens with the EITF's founding mission and its relationship to the FASB, then evaluates the task force's effectiveness before diving into a specific current issue as a case study. Subsequent sections address corporate impact, argue a position on the EITF's recommendations, compare GAAP and IFRS, and conclude with a forward-looking prediction about global standards. Each section builds logically on the previous one, making the overall argument cohesive.
The EITF's Mission and Its Influence on the FASB
The Emerging Issues Task Force (EITF) was established with the main purpose of addressing and resolving current issues faced by professionals in the accounting field that were not covered by existing announcements of the Financial Accounting Standards Board (FASB). Prior to the establishment of the EITF in 1984, the FASB constantly faced challenges in offering timely and practical solutions to developing practice problems. The EITF was therefore designed to disseminate and propagate carrying-out guidance within the structure of the Accounting Standards Codification, in order to decrease diversity in practice on a timely basis.
In their field of profession, accountants experience a wide range of issues that are not comprehensively addressed in accounting pronouncements and that require prompt resolution. In addition, such professionals note that the incessantly growing body of professional statements has generated a problem of an overabundance of standards. The most significant impact that the mission of the EITF exerts on the FASB is to reduce the necessity for the FASB to devote time and resources to addressing narrow execution, application, or other emerging issues that can be investigated within the prevailing Generally Accepted Accounting Principles (GAAP) (FASB, n.d.).
EITF Effectiveness and Recommendations for Improvement
The EITF must reach unanimity on a prospective solution to an issue through a voting system whereby 13 members out of the total 15 task force members must agree before a solution is published. The Emerging Issues Task Force is quite effective in providing swift and prompt responses to accounting issues and resolving them in comparison to the FASB. Moreover, the task force's effectiveness can be seen in the sense that its members respond to issues in a manner that is less prescriptive and imposing. Nonetheless, there are areas that require improvement by the EITF (Herz, 2015).
One key area of improvement is reducing the number of meetings required to reach resolutions on emerging accounting issues. Specifically, it should not take the EITF more than three meetings to address and resolve such issues. Another area of improvement concerns the voting process. The prevailing process is distinctive to some extent. As noted above, reaching an ultimate consensus requires that no more than three members of the task force object. Although this method was designed to promote consensus, provide prompt direction, and reduce diversity in practice, it can also produce problematic outcomes. This approach risks generating the least objectionable accounting rather than better accounting. A recommendation would be to require a majority positive voting result instead (Herz, 2015).
Key Areas Addressed by EITF Issue No. 15-F
Among the different issues addressed by the EITF, one key issue is EITF Issue No. 15-F: Statement of Cash Flows — Classification of Certain Cash Receipts and Cash Payments. One topic addressed is distributions received from equity method investments. The guidance provided by the task force offers an accounting policy election for the classification of such distributions. These amounts can be classified using two different approaches: the nature of distribution approach and the cumulative earnings approach (FASB, 2016).
Under the cumulative earnings method, the investor first compares distributions received against cumulative equity in earnings. Distributions received up to the cumulative equity earnings amount are deemed a return on investment and therefore classified in operating activities. Any surplus distributions are deemed a return of investment and classified in investing activities. Under the nature of distribution approach, distributions are classified based on the nature of the activities undertaken by the investee that give rise to the distribution. If the necessary data and information are inaccessible to determine the nature of those activities, then the cumulative earnings method must be applied. Any such change in approach must be disclosed in the financial statements (Althoff and McKeever, 2016).
A second issue concerns contingent consideration payments made subsequent to a business combination. The guidance specifies that cash payments made three months or less after the consummation date of the acquisition should be classified as cash outflows for investing activities. Any payments made more than three months after the consummation date should be classified as cash flows for financing activities, up to the amount of the initial contingent consideration liability. Payments that exceed the initial contingent consideration liability are classified as cash flows from operating activities (Althoff and McKeever, 2016).
References
Althoff, J., & McKeever, J. (2016). FASB finalizes guidance to simplify elements of cash flow classification. PricewaterhouseCoopers. Retrieved from http://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us-2016-35-fasb-cash-flow-classification.pdf
Althoff, J., McKeever, J., & Or, D. (2016). EITF observer: A meeting synopsis. PricewaterhouseCoopers. Retrieved from https://www.pwc.com/us/en/cfodirect/assets/pdf/eitf-observer/eitf-observer-june-2016.pdf
Deloitte. (2017). Statement of cash flows: Key differences between U.S. GAAP and IFRSs. Retrieved from https://www.iasplus.com/en-us/standards/ifrs-usgaap/cashflows
Epstein, B. J., Nach, R., & Bragg, S. M. (2009). Wiley GAAP 2010: Interpretation and application of generally accepted accounting principles. John Wiley & Sons.
FASB. (2016). EITF Issue No. 15-F: Statement of cash flows — Classification of certain cash receipts and cash payments. Retrieved from http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164069142
FASB. (n.d.). Emerging Issues Task Force (EITF). Retrieved from http://www.fasb.org/eitf/about_eitf.shtml
Herz, R. (2015). Improving EITF to improve accounting practice. Compliance Week. Retrieved from https://www.complianceweek.com/blogs/robert-herz/improving-eitf-to-improve-accounting-practice
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