In brief: FASB issues exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements

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In brief 03/06/2014 by Assurance services
In brief: FASB issues exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements

At a glance

PwC summarizes key elements of the FASB's new exposure draft of the Conceptual Framework for Financial Reporting: Notes to Financial Statements.

What happened?

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:

  • additional information about financial statement line items;
  • information about the reporting entity; and
  • information about past events and current conditions and circumstances that have not met the criteria for recognition, but may affect an entity’s future cash flows.

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:

  • relevance;
  • whether the benefit is justified by the cost; and
  • if future oriented information is beyond the control of management.

Interim periods

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:

  • highlight differences from the annual financial statements in the recognition, measurement or presentation of line items;
  • provide updated information about contingent and potential liabilities for which outcomes are highly uncertain and unpredictable;
  • update information about fair values given they may change in inherently less predictable ways; and
  • explain how the financial position and results of operations for the interim period relate to the expectations for the entire year.

Why is this important?

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. 

What's next?

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.

Questions?

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.

Authored by:

Sara DeSmith
Partner
Phone: 1-973-236-4084
Email: sara.desmith@us.pwc.com

Brandon Heiman
Senior Manager
Phone: 1-973-236-4261
Email: brandon.j.heiman@us.pwc.com