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Journal Entry — Disclosure Framework — FASB Considers the Purpose of the Notes and Redundancy in the Reporting Package

Published on: Jul 26, 2013

Yesterday, the FASB met to discuss certain aspects of its July 2012 discussion paper (DP), Invitation to Comment: Disclosure Framework.1 Today’s meeting focused on (1) clarifying the purpose of the notes to the financial statements and (2) the overlap of information in the notes and other parts of the financial report. The Board received feedback from constituents that it should clearly define the purpose of the notes to the financial statements to establish what information should be included in and excluded from the notes to the financial statements. Constituents were also concerned about redundancy in the full financial report caused by overlap between footnote disclosures required under U.S. GAAP and other disclosures (such as those required by the SEC).

Clarifying the Purpose of the Notes to the Financial Statements

Unlike EFRAG’s2 concurrent DP on the topic, the FASB’s DP did not clearly define the purpose of the notes to the financial statements. Constituents’ feedback indicated that this definition is critical to developing a disclosure framework. In response to this feedback, the staff drafted and the Board tentatively agreed on a summary of the purpose of the notes to the financial statements. This summary clarifies that the notes should include the following:

  • Clarification of and expansion on information on the face of the financial statements, including information about the reporting entity.
  • Financial statement line items.
  • Existing and past conditions that are capable of providing decision-useful information despite not meeting the criteria for recognition on the face of the financial statements.

The summary clarified that the notes to the financial statements should exclude forward-looking information (except for forward-looking expectations and assumptions that are used to explain inputs to items presented or disclosed in the financial statements)3 and information readily available from other sources that is not specific to the entity (such as broad economic factors).

Redundancy in the Full Financial Report

The Board discussed whether its framework should explicitly preclude the Board from requiring entities to disclose in the notes to the financial statements information required to be disclosed elsewhere by other regulatory bodies (such as information included in the MD&A for public registrants). Because the Board’s standard setting is not limited to public registrants, it decided that it could require such disclosure.



[1]    As part of the FASB’s project to develop a framework “to make financial statement disclosures more effective, coordinated, and less redundant,” the DP identifies aspects of the notes to the financial statements that need improvement and explores possible ways to improve them. If implemented, some of the proposals in the DP could significantly change the Board’s process for creating disclosure requirements in future standards and could potentially alter those in existing standards. See Deloitte’s July 17, 2012, Heads Up for additional information.

[2]    European Financial Reporting Advisory Group.     

[3]    See Deloitte’s June 20, 2013, journal entry for more information on decisions made about forward-looking information.

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