The Financial Accounting Standards Board plans at its next public meeting to discuss its controversial proposal to alter the concept of materiality within GAAP.

The FASB touched off a sensitive debate in 2015 when it proposed to alter its definition of materiality to make it more consistent with the concept of materiality as defined by the U.S. Supreme Court. The two-part proposal came as part of a larger project the FASB has been pursuing to reconsider its entire disclosure framework — both the guidance GAAP contains for companies to follow in deciding what to disclose in financial statements and the concepts the board follows in deciding what to require in the way of disclosures.

The board’s objective is to make disclosures more effective, in part by giving companies more latitude to decide based on their own facts and circumstances what is material and should be disclosed to their investors. As the board considered various aspects of its guidance and its concept statements, which govern the standard setting process, it realized its definition of materiality was out of step with that used in financial reporting circles.

FASB’s current definition in its conceptual framework for materiality dates to 2010, when the board adopted some language in tandem with the International Accounting Standards Board to reduce differences between U.S. and international accounting rules. After doing so, the FASB discovered the new language was at odds with the U.S. Supreme Court interpretation of materiality, which serves as the basis for materiality considerations throughout financial reporting in the United States.

The current definition says: “Information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report.”

The proposed new language, deferring to the legal concept developed through case law, says: “Information is material if there is a substantial likelihood that the omitted or misstated item would have been viewed by a reasonable resource provider as having significantly altered the total mix of information.”

FASB viewed its proposal as conforming its guidance to the concept of materiality that is already used in practice. Investor advocates saw it differently. They believe the new language would serve to lower the materiality threshold, giving companies reason to disclose less information to investors than they do currently.

The board received a little more than 100 comment letters on the two-part proposal, some addressing just the GAAP language, some addressing the edit to the board’s concept statement and some addressing both. A staff analysis of the comments finds preparers and auditors generally agreed with the new language, but investor advocates or users of financial statements generally disagreed.

The FASB plans to review the feedback and re-deliberate the proposal at its next public meeting.

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