Materiality Improvements proposed by FASB regarding Financial Disclosures
Two exposure drafts have been issued by FASB (Financial Accounting Standards Board) for comment which relates to materiality project and the Disclosure Framework with the intention of making effective the financial disclosures.
The project of the Disclosure Framework objective is in improving the effectiveness of disclosures in the notes to the financial statements by communicating more clearly the information needed by GAAP which is very useful to the financial statements users. Being part of their entire project, the exposure draft addresses the materiality use in assisting organizations to use discretion in the determination of disclosures of notes in the financial statements that should be deemed as material and also to assist FASB to understand the environmental reporting which sets reporting standards and financial accounting.
Stakeholders revealed that the present materiality discussion in the conceptual framework is not consistent with the materiality legal concept. This consequently led to uncertainty in organizations, interpreting abilities of the material disclosures and the decision of the board to evaluate and identify the disclosure needs in the accounting standards. The proposals are envisioned for clarifying materiality that will help organizations to improve their disclosure effectiveness through omission of materials that are not material and concentrate on the relevant material items.
There is an exposure draft which contains FASB amendments Concept Statement Number 8, the Conceptual Framework for Financial Reporting in clarifying the materiality concept. In the other exposure draft which is the proposed Update on Accounting standards and Notes to Financial statements. This is in Topic 235 on Assessing if Disclosures Are material and are also a component of the entire process of decision making. It aims to promote the suitable use of discretion by companies when making a decision on the disclosures that need to be deemed as material in their individual circumstance. These amendments need to apply to every type of organization whether private or public, non -governmental organizations and other plans of employee benefits. Stakeholders are being encouraged by FASB to comment and review on both of these exposure drafts by 8th December 2015.