As part of its disclosure framework project, the Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update (ASU), Interim Reporting (Topic 270): Disclosure Framework – Changes to Interim Disclosure Requirements. The proposed ASU is intended to clarify the application of accounting principles and improve the effectiveness of reporting practices for entities preparing interim financial statements and notes in accordance with U.S. generally accepted accounting principles (GAAP). If finalized, the proposed ASU would:
- Require that an entity:
- Provide disclosure at interim periods when a significant event or transaction has occurred since the prior year-end that has a material effect on an entity, a requirement that previously was included in SEC Regulation S-X Rule 10-01, Interim Financial Statements.
- Refer a reader of interim financial statements and notes to the previous annual financial statements when providing condensed financial statements or limited notes.
- Explain that the interim results may not be indicative of the annual results or that adjustments have been made to the period to provide a more relevant depiction of the entity’s results (e.g., accruals for estimated expenditures).
- Clarify that the following three forms of financial statements and notes satisfy the interim reporting requirements under GAAP:
- Financial statements prepared with the same level of detail as the previous annual statements subject to all the presentation and disclosure requirements in GAAP;
- Financial statements prepared with the same level of detail as the previous annual statements subject to all the presentation requirements in GAAP and limited notes subject to the disclosure requirements in FASB Accounting Standards Codification (ASC) Topic 270, Interim Reporting; and
- Condensed financial statements and limited notes subject to the disclosure requirements in ASC 270.
- Amend ASC 270 to state that it and its related subtopics contain (a) complete guidance on interim reporting requirements and (b) references to interim reporting requirements detailed in other Topics.
- Eliminate the phrase at minimum from ASC 270 and add language to ASC 270 to (a) promote entities exercising discretion when considering interim reporting disclosures and (b) clarify that assessing materiality is appropriate for entities when evaluating disclosure requirements. That language also would clarify that assessing which disclosures to provide at interim periods involves considering information provided at the previous annual period.
- Clarify when comparative disclosures are required by removing phrases such as for each period presented and instead referring to making comparative disclosures when comparative statements are presented.
- Clarify the applicability of interim disclosure requirements to all entities (both public and private entities) that provide interim financial statements and notes in accordance with GAAP.
If finalized, the amendments would be applied prospectively. The FASB will determine the effective date and whether early adoption should be permitted after it considers stakeholders’ feedback. The proposed ASU is available for comment until January 31, 2022.