United States

FASB addresses materiality in financial statement disclosures


As part of its disclosure framework project, the Financial Accounting Standards Board (FASB) recently issued two exposure drafts that address materiality:

  • Proposed Accounting Standards Update (ASU), Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material – This proposed ASU is intended to promote the appropriate use of discretion by organizations when deciding which disclosures in notes to financial statements should be considered “material” in their particular circumstances. The amendments in the proposed ASU would:
    • State that materiality is applied to quantitative and qualitative disclosures individually and in the aggregate in the context of the financial statements taken as a whole; therefore, some, all or none of the requirements in a disclosure section may be material
    • Refer to materiality as a legal concept
    • State specifically that an omission of immaterial information is not an accounting error
    To be consistent with the amendments in this proposed ASU, the FASB is proposing to make the following changes to existing disclosure requirements in each disclosure Section within the Accounting Standards Codification (ASC):
    • Each ASC Topic would state that an entity shall provide required disclosures if they are material
    • Each disclosure Section would refer to Topic 235, as amended by the proposed ASU, for discussion of the appropriate exercise of discretion
    • Existing phrases such as “an entity shall at a minimum provide,” which may make it difficult to justify omitting immaterial disclosures, would be replaced with less prescriptive language
  • Proposed Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 3: Qualitative Characteristics of Useful Financial Information – This proposed Concepts Statement would amend Chapter 3, “Qualitative Characteristics of Useful Financial Information,” of Concepts Statement 8, Conceptual Framework for Financial Reporting, to ensure the materiality concepts discussed in Chapter 3 are consistent with the legal concept of materiality. 

The exposure drafts are available for comment until December 8, 2015.