The Financial Accounting Standards Board made two changes to its conceptual framework Tuesday and released a pair of accounting standards updates aimed at making disclosures in notes to financial statements more effective.
A new chapter in the conceptual framework on disclosures discusses what information should be included in the notes to financial statements, describing the purpose of the notes, the nature of the appropriate content and general limitations. It also addresses FASB’s considerations in terms of interim reporting disclosure requirements.
There is also an update to an existing chapter of the conceptual framework pertaining to the definition of materiality. The amendment harmonizes FASB’s definition of materiality with other definitions in the financial reporting system. The materiality concepts will now align with the definition of materiality used by the Securities and Exchange Commission, the auditing standards of the Public Company Accounting Oversight Board and the American Institute of CPAs, as well as the U.S. judicial system.
Along with those changes in the conceptual framework, FASB has also issued an accounting standards update on fair value measurement disclosure requirements. The standard enhances the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments take effect for all organizations for fiscal years, and interim periods within those fiscal years, starting after Dec. 15, 2019, although early adoption is also allowed.
The other accounting standards update is about disclosure requirements for defined benefit plans. The standard improves the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments take effect for fiscal years ending after Dec. 15, 2020, for public companies, and for fiscal years ending after Dec. 15, 2021, for all other organizations. Early adoption for that ASU is also permitted.
“The two changes to our conceptual framework will help the board identify and evaluate disclosure requirements in accounting standards and clarify the concept of materiality,” said FASB chairman Russell G. Golden in a statement. “Meanwhile, the new standards improve fair value and defined benefit disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements, and adding relevant disclosure requirements.”
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