FASB proposes changes in conceptual framework to define elements in financial statements

The Financial Accounting Standards Board is proposing a new chapter in its conceptual framework that defines 10 elements of financial statements.

The proposed chapter, Concepts Statement No. 8, Conceptual Framework for Financial Reporting—Chapter 4, Elements of Financial Statements, defines 10 elements of financial statements that would be applied in developing standards for public and private companies and nonprofit organizations within the conceptual framework. They are assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners, and comprehensive income.

“The proposed new chapter of the FASB’s conceptual framework will provide a useful reference in the board’s future standard-setting process,” said FASB’s new chairman, Richard R. Jones, in a statement Thursday. “An updated conceptual framework can help us set standards that improve the understandability of information companies and organizations provide to existing and potential investors, lenders, donors and other resource providers.”

The proposed new chapter would replace Concepts Statement No. 6, Elements of Financial Statements, clarifying its elements in various ways. Specifically, it would clearly identify the right or obligation that gives rise to an asset or a liability; eliminate terminology that makes the definitions of assets and liabilities difficult to understand and apply; clarify the distinction between liabilities and equity and between revenues and gains and expenses and losses; and modify the distinctions in equity for nonprofit entities.

The proposal is part of FASB’s ongoing conceptual framework project, which also includes current projects that address measurement and disclosure concepts.

More information on the exposure draft, including a FASB In Focus summary, is available on the FASB website.

FASB is asking for comments on the proposal by Nov. 13, 2020.

Courtesy of GASB