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Streamlining Financial Statement Disclosures
 

Streamlining Financial Statement Disclosures

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In March 2014 the Financial Accounting Standards Board (FASB or Board) issued an exposure draft: Proposed Statement of Financial Accounting Concepts: Conceptual Framework for Financial Reporting, ...

In March 2014 the Financial Accounting Standards Board (FASB or Board) issued an exposure draft: Proposed Statement of Financial Accounting Concepts: Conceptual Framework for Financial Reporting, Chapter 8: Notes to Financial Statements. The exposure draft proposes a framework that the FASB will use to identify information that is most important to financial statement users of for-profit and not-for-profit entities’ financial statements, and to reduce unnecessary disclosures within those financial statements. Comments on the exposure draft are due July 14, 2014.
The disclosure framework project began in 2009 as an effort to create financial disclosures that are more effective, coordinated and less redundant. In 2012 the FASB issued an invitation to comment that outlined the objectives of the project’s two phases: the Board’s decision process and the entity’s decision process. The March 2014 exposure draft addresses the Board’s decision process phase of the project.

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    Streamlining Financial Statement Disclosures Streamlining Financial Statement Disclosures Document Transcript

    • our roots rundeepTM Mayer Hoffman McCann P.C. – An Independent CPA Firm A publication of the Professional Standards Group MHMMessenger © 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved. TM In March 2014 the Financial Accounting Standards Board (FASB or Board) issued an exposure draft: Proposed Statement of Financial Accounting Concepts: Conceptual Framework for Financial Reporting, Chapter 8: Notes to Financial Statements. The exposure draft proposes a framework that the FASB will use to identify information that is most important to financial statement users of for-profit and not-for-profit entities’ financial statements, and to reduce unnecessary disclosures within those financial statements. Comments on the exposure draft are due July 14, 2014. The disclosure framework project began in 2009 as an effort to create financial disclosures that are more effective, coordinated and less redundant. In 2012 the FASB issued an invitation to comment that outlined the objectives of the project’s two phases: the Board’s decision process and the entity’s decision process. The March 2014 exposure draft addresses the Board’s decision process phase of the project. Exposure Draft Overview The exposure draft notes that the primary purposes of disclosures within financial statements is to explain information in the financial statements in a way that is relevant to investors, lenders and other creditors March 2014 Streamlining Financial Statement Disclosures to assist them in making decisions about providing resources to the entity. Additionally, for not-for-profit entities, the information needs of contributors would be considered. These users can be thought of as the “resource providers” to the entity, and they would need information about financial statement line items, the entity and past events and current conditions that would impact the cash flows of the entity. This may include assumptions and expectations related to future events and non-entity specific information that an entity has available and that would be important for the resource providers in making decisions. After identifying those that use the financial statements and the purposes of the disclosures, the exposure draft evaluates the limitations on providing information within the financial statement disclosures. These limitations are a key consideration within the exposure draft as they are likely to be the primary reasons for streamlining disclosures. The limitations are: • Relevance – Information should be required only when it is relevant to the resource providers of the specific entity reporting. However, because information may be relevant to a significant number of resource providers to a type of entity, the Board must make judgments to establish disclosure requirements. Significantly, the exposure draft acknowledges that materiality considerations should be left to the individual entity and thus the requirements established by the FASB should not preclude the use of materiality judgments.
    • © 2 0 1 4 M ay e r H o f f m a n M c C a n n P. C . 877-887-1090 • www.mhmcpa.com • All rights reserved. MHMMessenger 2 The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report. • Cost – The benefits of disclosure would not be expected to justify the cost if 1) the information is not specific to the entity and is not readily and cost effectively available from other sources and 2) a knowledgeable user should be aware of the information and its availability. In addition, the exposure draft acknowledges a need to attempt to avoid requiring disclosure of information that is already required to be provided, by, for instance, the SEC. • Negative consequence of future-oriented information – Future information is often valuable to resource providers, however, in the absence of safe harbor protections negative consequence through litigation or a loss of credibility could occur to an entity making a future oriented disclosure. Future oriented information that may be useful without such consequences includes information about estimates and assumptions used in measurements, plans or strategies for matters under the control of management, and the effect of specific future changes (i.e. disclosure about the sensitivity of a calculation to a change in an input). The exposure draft also discusses specific considerations for private companies, related parties, corrections of errors, and interim reporting, among others. Finally, Appendix A to the exposure draft includes questions that the FASB would utilize to determine when disclosure is appropriate within the context of the concepts established. Other Standard Setters The FASB discussed the conceptual framework project with the International Accounting Standards Board (IASB) in 2012 and concluded that it would not perform a comprehensive revision of all concepts. While the IASB has a conceptual framework and disclosure initiative projects this exposure draft is not a joint project. In addition to the work of the IASB, the Securities and Exchange Commission (SEC) has commented on the need to streamline disclosures and issued a staff report in December 2013 providing preliminary conclusions and recommendations related to the disclosure requirements of Regulation S-K. The FASB is coordinating work on disclosures with SEC staff as it works on its disclosure framework projects. For More Information The exposure draft is available from the FASB’s website (FASB.org) and comment letters are due July 14, 2014. After the comment period is completed the FASB is expected to redeliberate the exposure draft before adopting the concept statement and beginning the process of considering potential streamlining of required disclosures. A timeline for the second phase of the disclosure framework project and for redeliberations of this exposure draft has not been established. If you have any specific questions, comments or concerns, please share them with Ernie Baugh or James Comito of MHM’s Professional Standards Group or your MHM service professional. You can reach Ernie at ebaugh@mhm-pc.com or 423.870.0511 and James at jcomito@cbiz.com or 858.795.2029.