FASB PROPOSES IMPROVEMENTS TO MATERIALITY
TO MAKE FINANCIAL STATEMENT DISCLOSURES MORE EFFECTIVE
Norwalk, CT, September 23, 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:
The exposure draft containing amendments to FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, is intended to clarify the concept of materiality. Specifically, these amendments would be made to Chapter 3, Qualitative Characteristics of Useful Financial Information.
- 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
“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.