The Financial Accounting Standards Board (FASB) has proposed a new principle under Topic 270 that would require disclosures for a significant event or transaction that has a material effect on an entity and results in disclosures that are transaction or event specific. FASB noted that disclosure was previously required under Regulation S-X Rule 10-01, but the SEC removed the language in Release No. 33-10532, a disclosure update and simplification.
The proposed changes are part of FASB’s disclosure framework project aimed at improving the effectiveness of disclosures in the notes to financial statements. All of the changes pertain to Topic 270, Interim Reporting, which clarifies the application of accounting principles and disclosure practices for companies preparing interim financial statements and notes in accordance with GAAP.
Assessing materiality. In addition to reintroducing the disclosure requirement for significant events with a material effect on a company, FASB proposed to eliminate the phrase “at minimum” and add language to Topic 270 to encourage entities to exercise discretion when considering interim reporting disclosures. FASB also proposed to clarify that assessing materiality is appropriate for entities when evaluating disclosure requirements, and that assessing which disclosures to provide at interim periods involves considering information provided at the previous annual period.
FASB also is seeking changes to clarify the presentation and disclosure alternatives for interim financial statements and notes in accordance with GAAP. In particular, the proposed changes would clarify that the following three forms of financial statements and notes are in accordance with 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 Topic 270; and
- Condensed financial statements and limited notes subject to the disclosure requirements in Topic 270.
FASB said that the amendments would indicate that Topic 270 contains all interim reporting requirements and/or references to interim reporting requirements detailed in other Topics.
With regard to providing comparative disclosures, the proposed amendments would clarify when comparative disclosures are required. The amendments also would remove phrases such as “for each period presented” and instead refer to making comparative disclosures when comparative statements are presented.
Stakeholder feedback. FASB requested that comments be provided by the end of January 2022. Among the questions posed to stakeholders in the release are:
- Would the amendments that introduce a principle similar to the language removed from Regulation S-X Rule 10-01 result in less, more, or the same degree of decision-useful information for interim reporting?
- Upon a significant event or transaction occurring since the date of the prior annual financial statements and notes, should an entity provide all the disclosures required by the applicable Topic or only information specific to the event or transaction as described in paragraph 270-10-55-1?
- Is the proposed disclosure guidance on significant events or transactions operable, and which aspects may pose operability issues?
- Are the proposed amendments that would clarify that an entity’s assessment of whether to provide a disclosure at an interim period may incorporate the information provided in the prior annual financial statements and notes appropriate, and would they result in a change in practice?