Disclosure Framework — FASB Considers Forward-Looking Information

Published on: 20 Jun 2013

Yesterday, the FASB met to discuss certain aspects of its July 2012 discussion paper (DP) Invitation to Comment: Disclosure Framework. 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 ideas 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.

The Board made a number of tentative decisions at the meeting, such as to treat the Board’s decision process and that of entities separately in the context of the disclosure framework. The Board also decided to continue working on the decision process for interim disclosures at the same time as the process for annual disclosures.

Disclosure Framework Considerations Related to Forward-Looking Information

The FASB discussed “boundary issues” (e.g., determining what information should be included in or excluded from the notes to the financial statements), including clarifications of whether and how the Board should consider forward-looking disclosures in the notes to the financial statements. The FASB decided that it would be appropriate for it to consider forward-looking information about existing circumstances that have implications for the future.

The staff paper for the meeting outlined the following examples of information that should be considered for disclosure in the footnotes:

  • “Projections based on historical trends and/or existing factors (for example, useful lives of assets).”
  • “Information about how existing assets or liabilities would change as a result of specified future changes, as opposed to changes in conditions based on management’s predictions.”
  • “Future performance required by existing contractual terms (for example, analyses of contractual maturities).”

The Board also decided that the framework should take into account disclosures about forward-looking expectations and assumptions that are used to explain inputs to items presented or disclosed in the financial statements (e.g., forward-looking impairment assumptions that were used to calculate a recognized asset impairment). The FASB clarified that these disclosures generally would not include expectations and assumptions that were not used to measure an amount that was recognized in the financial statements.

Decision Questions

The Board decided to amend certain decision questions in Chapter 2 of the DP related to (1) general information about the reporting entity as a whole and (2) information about other events and conditions that can affect an entity’s prospects for future cash flows. The amendments would achieve consistency with the FASB’s tentative decisions on forward-looking information (discussed above).

Next Steps

The staff plans to conduct field studies to obtain feedback and to continue to address comments from the Board. The FASB did not decide when it would issue an exposure draft on the topic.

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