News Release 09/24/15
FASB PROPOSES IMPROVEMENTS TO MATERIALITY
TO MAKE FINANCIAL STATEMENT DISCLOSURES MORE EFFECTIVE
Norwalk, CT, September 24, 2015—The Financial Accounting Standards Board (FASB) today issued for public comment two exposure drafts related to its disclosure framework project. Stakeholders are encouraged to review and comment on both exposure drafts by December 8, 2015.
The objective of the Disclosure Framework project is to improve the effectiveness of disclosures in notes to financial statements by more clearly communicating the information required by Generally Accepted Accounting Principles (GAAP) that is most important to the users of financial statements. It focuses on improving disclosures by providing guidance in two main areas: the reporting entity’s decision process and the Board’s decision process.
As part of this overall project, the exposure drafts address the use of materiality in:
- Helping organizations employ discretion when determining what disclosures in notes to financial statements should be considered “material” in their particular circumstances, and
- Helping the Board understand the reporting environment in which it sets financial accounting and reporting standards.
The proposed Accounting Standards Update (ASU), Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, a component of the “entity decision process,” is intended to promote the appropriate use of discretion by organizations when deciding which disclosures should be considered material in their particular circumstances. The amendments to Topic 235 would apply to all types of organizations—public and private companies, not-for-profit organizations, and employee benefit plans.
“Stakeholders indicated that the current discussion of materiality in our Conceptual Framework is inconsistent with the legal concept of materiality as established by the U.S. Supreme Court,” stated FASB Chairman Russell G. Golden. “This led to uncertainty about organizations’ abilities to interpret what disclosures are material; and the Board’s ability to identify and evaluate disclosure requirements in accounting standards.
“These proposals are intended to clarify materiality—which will help organizations improve the effectiveness of their disclosures by omitting immaterial information, and focus communication with users on the material, relevant items,” added Golden.
More information on the exposure draft, including a FASB In Focus, is available on the FASB website.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.