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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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.

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• 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.