PwC summarizes key elements of the FASB's new exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements.
On March 4, 2014, the FASB issued an exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements (the “Proposal” or “Notes Framework”).
The Proposal is part of the Board’s disclosure framework project, intended to make financial statement disclosures more effective and less redundant. It details a framework to be used by the Board in its standard-setting activities for determining what information is relevant to the users of financial statements and should be included in the notes. The Notes Framework will not only be used as a basis for establishing future disclosure requirements, but can be used to evaluate existing disclosures.
Underlying the Proposal is an understanding that financial statement notes should provide supplemental information or explanations that assist current and potential financial statement users in making decisions about providing resources to the entity.
According to the Proposal, such information should include:
Limitations on information in notes to financial statements
The Board is cognizant that excessive disclosure may obscure important information and increase the risk that users overlook it. Excessive disclosure can also put an unnecessary burden on reporting entities. The Proposal would provide a framework to guide the FASB’s judgments about disclosure requirements. When evaluating potential new disclosures, the Board would consider:
The Proposal also describes how interim financial statements differ from annual general purpose financial statements. Interim disclosures may be more summarized than annual disclosures and should, for example:
The Notes Framework has the potential to significantly influence the decisions the Board makes regarding the type and volume of information required in the notes to financial statements.
We encourage companies who wish to influence the outcome of the project to submit a response to the FASB. Comments on the exposure draft are due by July 14, 2014.
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams who have questions should contact the National Professional Services Group.