Project Update

Disclosure Framework—Entity’s Decision Process

Last updated on March 27, 2015. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

*Project Objective and Overview
Field Study
Due Process Documents
*Decisions Reached at Last Meeting
Tentative Board Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Background Information
*Contact Information

*Project Objective and Overview

The objective and primary focus of the Disclosure Framework project is to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of each entity’s financial statements. (Although reducing the volume of the notes to financial statements is not the primary focus, the Board hopes that a sharper focus on important information will result in reduced volume in most cases.)

The objective of improving effectiveness will require development of a framework that promotes consistent decisions about disclosure requirements by the Board and the appropriate exercise of discretion by reporting entities. To achieve this objective, the Disclosure Framework project comprises two components: the Board’s Decision Process and the Entity’s Decision Process.

The Entity’s Decision Process is intended to promote the use of discretion by reporting entities when evaluating the requirements as set forth by the Board.

Currently four sets of disclosure requirements are being reviewed as part of the Disclosure Framework project. Each review will include (1) and evaluation of existing disclosure requirements within the Topic after applying the concepts in the Board’s decision process and (2) consideration of ways to promote the appropriate use of discretion specifically within the Topic. The Board’s decision process and the entity’s decision process are being used together to modify the disclosure sections in the following Topics:
  1. Fair Value Measurement (820-10-50)
  2. Defined Benefit Plans (715-20-50)
  3. Income Taxes (740-10-50)
  4. Inventory (330-10-50)
Additionally, disclosure requirements for Interim Reporting are being evaluated for modifications.

The FASB staff has developed a “Q&A: FASB’s Disclosure Framework Project” fact sheet which can be viewed here.

Field Study

The FASB conducted a field study which tested the ability of public and private companies and not-for-profit organizations to exercise discretion over which disclosures they provide in notes to financial statements. The FASB staff presented the results of this field study and next steps based on the field study findings at the April 4, 2014 Board Meeting.

Due Process Documents

On July 12, 2012, the Board issued Invitation to Comment – Disclosure Framework. The original due date for comment letters was set for November 16, 2012 but due to Hurricane Sandy the comment period was extended two weeks to November 30, 2012.

*Decisions Reached at the Last Meeting (February 18, 2015)

The Board decided the disclosure Section in a Topic:
  1. Would state that an entity should provide the disclosures to the extent material
  2. Would not include language that limits the use of discretion (for example, “An entity shall at a minimum provide…”)
  3. Would include a reference to Topic 235, Notes to Financial Statements, and the Board would modify that Topic to provide additional guidance on applying materiality to note disclosures. That guidance would include:
    1. Materiality is applied to disclosures individually and in the aggregate; therefore, some, all, or none of the requirements in a disclosure Section may be material.
    2. A disclosure is material if it meets the U.S. Supreme Court’s description of materiality, which comes from court cases and interpretations.
    3. Consistent with the U.S. Supreme Court’s description, qualitative and quantitative disclosures generally should be evaluated as material based on whether there is a substantial likelihood that the omitted disclosure would have been viewed by a reasonable user as having significantly altered the total mix of information made available in making a decision.
    4. If an entity does not provide a GAAP disclosure because management has concluded the information is not material, the omission should not be considered an accounting error.
The Board decided that although materiality is a legal concept that varies by jurisdiction, the guidance would not explicitly acknowledge those variances.

*Tentative Board Decisions Reached to Date (as of February 18, 2015)

Tentative Board Decisions Reached to Date

*Next Steps

The staff will develop ways in which the Board can further promote the appropriate use of discretion. This will include potential modifications to the disclosure sections of the four Topics being reviewed: fair value measurement, defined benefit plans, income taxes, and inventory. The findings based on the work in those sections may become a basis for modifications in other areas throughout the Codification.

At a future meeting, the staff will discuss additional outreach on costs and benefits, transition, and comment letter period with the Board before asking for permission to draft the proposed Accounting Standards Update related to the Entity’s Decision Process.

*Board/Other Public Meeting Dates

On December 1, 2014, the FASB held a forum to discuss financial disclosures at Pace University in New York City.

Read the media meeting recap from the forum discussion on financial disclosures

Download and listen to the audio replay of the forum

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*February 18, 2015 Board Meeting—Flexible Disclosure Requirements
May 28, 2014 Board Meeting—Interim Disclosures
April 4, 2014 Board Meeting—Field Study Results and Next Steps
June 19, 2013 Board Meeting—Forward-Looking Disclosure Information, Decision Questions, and Changes to the Technical Plan
February 13, 2013 Board Meeting—Comment Letter Summary and Analysis of Comments and Possible Next Steps
April 25, 2012 Board Meeting —Interim Disclosures and Cost Consequence
August 24, 2011 Board Meeting—Decision Process for Disclosures about Line Items
August 18, 2010 Board Meeting—Objectives, Principles, and Criteria for Use in Setting Standards for Required Disclosures of Financial Information

July 8, 2009

Board MeetingAgenda Announcement

Background Information

On July 8, 2009, the FASB chairman announced (press release) the addition of a new agenda project aimed at establishing an overarching framework intended to make financial statement disclosures more effective, coordinated, and less redundant. The project was added in response to requests and recommendations received from several constituents, including the Investors Technical Advisory Committee (ITAC) and the Securities and Exchange Commission’s (SEC) Advisory Committee on Improvements to Financial Reporting (Recommendations 1.2 and 1.3).

The staffs of the Board and the European Financial Reporting Advisory Group (EFRAG) have cooperated in the development of the ideas discussed in this Invitation to Comment and a similar discussion paper issued by EFRAG.

*Contact Information

Nick Cappiello
Project Manager

Jaime Dordik
Assistant Project Manager

Kelsey Jensen
Postgraduate Technical Assistant

Kristin Floyd
Postgraduate Technical Assistant