More than a year after the Financial Accounting Standards Board set off a flash of debate over how to define materiality, the board is hosting roundtable meetings in March to discuss materiality and its decision process around its proposed change to accounting concepts.
FASB issued an exposure draft in the fall of 2015 to revise its conceptual framework for financial reporting. FASB’s concept statements are a kind of user’s guide that the board follows in deciding how to write or revise accounting standards. They form the basis for what accounting rules should require.
With the revised framework, FASB also proposed an amendment to an accounting standard that guides companies on assessing whether disclosures are material. The amendment would replace the existing GAAP definition of materiality with a deference to the legal definition for materiality that was established by the U.S. Supreme Court.
Some regarded the change as a benign edit, aligning accounting rules with the law books by adopting language already understood in securities legal circles. However, soon after FASB issued its proposal, an investor advisory panel at the Securities and Exchange Commission lit up with alarm. Some prominent investor advocates said FASB’s new definition codified into GAAP would lower the current threshold on disclosure requirements, giving companies reason to provide less information to investors.
As a way to test how the change to FASB’s conceptual framework would affect disclosure requirements, FASB issued subsequent exposure drafts with the goal of improving the effectiveness of disclosure requirements in income taxes, inventory, fair value measurements, and pensions and other post retirement benefit plans. Those exposure drafts all presented changes that would reflect the proposed change in the conceptual framework.
The board is hosting two separate sessions on March 17, one to discuss its decision process under the disclosure framework and one to discuss materiality specifically. The board is looking for feedback on whether its proposed changes to concept statements will be useful in identifying relevant disclosures, using its four further proposals as examples to discuss.
The board will webcast the sessions live and archive them on its website. FASB also is accepting registrations for seating on a first-come, first-served basis.