The FASB has issued an Exposure Draft titled, Notes to Financial Statements (Topic 235), Assessing Whether Disclosures Are Material
, which is a part of its disclosure framework project.
The objective of the disclosure framework project is to improve the effectiveness of disclosures in the notes to financial statements by clearly communicating the information required by GAAP that is most important to users of each entity’s financial statements.
The disclosure framework project consists of the following components:
- The Board’s decision process – to improve the FASB’s Concepts Statements to aid the Board when identifying and evaluating disclosure requirements in current and upcoming financial accounting and reporting standards
- The entity’s decision process – to provide guidance to reporting entities when making decisions about what disclosures should be considered “material” in their particular circumstances
The Exposure Draft, a component of the “entity decision process,” would promote the appropriate use of discretion by reporting entities when deciding which disclosures should be considered material in their particular circumstances. This would improve the effectiveness of notes to financial statements by helping reporting entities omit immaterial information and focus communication with users on the material, relevant items.
The amendments to Topic 235 in this proposal would:
- State that materiality is applied to quantitative and qualitative disclosures individually and in the aggregate in the context of the financial statements taken as a whole; therefore, some, all, or none of the requirements in a disclosure Section may be material
- Refer to materiality as a legal concept
- State specifically that an omission of immaterial disclosures is not an accounting error
- The proposed amendments would apply to all types of organizations – public and private companies, not-for-profit organizations, and employee benefit plans.
The proposed amendments would not change any specific disclosure requirements.
The amendments in this Exposure Draft would be effective upon issuance. Reporting entities may choose to apply the proposed amendments in only the most recent year reported (prospective) or in all years presented (retrospective).
Comments on this Exposure Draft are due December 8, 2015. The full text of the Exposure Draft is available by clicking here.
Readers should not act upon information presented without individual professional consultation.