The Financial Accounting Standards Board made two changes to its conceptual framework on Tuesday and released a pair of accounting standards updates aimed at making disclosures in notes to financial statements more effective.
A new chapter of the conceptual framework on disclosures discusses the information that should be included in the notes to the financial statements, describing the purpose of the notes, the nature of the appropriate content and general limitations. It also discusses the FASB’s considerations in terms of information requirements for interim reports.
There is also an update to an existing chapter of the conceptual framework relating to the definition of materiality. The amendment harmonizes the definition of materiality of the FASB with other definitions in the financial reporting system. The concepts of materiality 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 CPA, and the System American judiciary.
Along with these changes to the conceptual framework, the FASB also published a update of accounting standards on information obligations on the measurement of fair value. The standard strengthens the disclosure requirements for fair value measurements in topic 820, Fair value measurement. The changes are effective for all organizations for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, although early adoption is also permitted.
The other update of accounting standards concerns disclosure requirements for defined benefit plans. The standard improves disclosure requirements for employers who sponsor defined benefit pension plans or other pension plans. The changes are effective for fiscal years ending after December 15, 2020, for public companies, and for fiscal years ending after December 15, 2021, for all other organizations. Early adoption of this ASU is also permitted.
“The two changes to our conceptual framework will help the board identify and assess disclosure requirements in accounting standards and clarify the concept of materiality,” said FASB Chairman Russell G. Golden , in a press release. âIn the meantime, the new standards improve fair value and defined benefit disclosure requirements by removing disclosures that are unprofitable, clarifying specific disclosure requirements and adding relevant disclosure requirements. “