Disclosure framework — FASB considers feedback on not-for-profit entities and certain decision questions

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07 Aug 2013

The FASB met to discuss certain aspects of its July 2012 discussion paper (DP), 'Invitation to Comment: Disclosure Framework'.* The Board discussed (1) whether and, if so, how the decision process would respond to donor needs related to not-for-profit entity financial statements and (2) feedback on and proposed changes to the decision questions in the DP about line items in the financial statements. For a list of these questions, see chapter 2 of the DP.

Decision Process Changes to Consider Needs of Donors

In developing disclosures for not-for-profit entity financial statements, the Board tentatively decided to (1) clarify that the Board’s decision process should take into account the needs of donors and (2) revise the decision questions in the DP to ensure that the Board contemplates these needs in developing disclosures. The decision questions in the DP are currently relevant to for-profit entities because of their emphasis on providing useful information on an entity’s cash flows. These revised decision questions will direct the Board to consider requiring information on the stewardship of not-for-profit entities (i.e., how effectively a not-for-profit entity uses its resources to accomplish its mission).

Changes to Decision Questions Regarding Line Items in the Financial Statements

The Board summarized feedback received from constituents on the decision questions in the DP related to line items in the financial statements (Questions L1–L16). Feedback on the decision questions included concerns about the following:

  • The potential requirement to provide forward-looking information in the notes to the financial statements. [See Deloitte’s June 20, 2013, journal entry for more information on decisions made about forward-looking information.]
  • The lack of consideration related to disclosures provided by not-for-profit entities (as addressed above).
  • The potential requirements to disclose (1) the magnitude of alternative accounting policies, (2) the pro forma effect of an accounting pronouncement before its effective date, and (3) alternative measures.
  • The potential overlap with SEC disclosures. [See Deloitte’s July 26, 2013, journal entry for more information on decisions made about redundancy in the full financial report.]
  • The combination of certain decision questions.
  • The addition of a decision question to address linkage between line items.

After discussing this feedback, the Board tentatively decided to clarify two of the concerns (bolded above). Specifically, the Board decided to clarify Question L13 on pro forma disclosures about the effect of an accounting pronouncement before its effective date by more closely aligning the wording of the question with relevant SEC guidance (SEC Staff Accounting Bulletin Topic 11.M, “Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of the Registrant When Adopted in a Future Period”). The Board plans to clarify the decision question to specify that an entity may need to disclose the pro forma effect of an accounting pronouncement on current-year financial statements if the effect is “known and supportable by the entity in advance of the transition date.” In addition, the Board decided to add a decision question to potentially require preparers to disclose the linkage between line items when such linkage is not otherwise apparent.

The July 2012 DP, Invitation to Comment: Disclosure Framework, is available on the FASB's website.


* 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.

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