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Draft Statement Presentation Guidance Is Released for Conceptual Framework

The FASB has released for public comment a draft chapter of its Conceptual Framework for financial statement presentation. If finalized, the guidelines should help the board make consistent decisions about presentation issues when it writes accounting standards.

The FASB on August 11, 2016, released for public comment a draft chapter on financial statement presentation for its Conceptual Framework, the board’s guidelines for setting consistent accounting standards.

Proposed Statement of Financial Accounting Concepts (CON) No. 2016-300, Concepts Statement No. 8 — Conceptual Framework for Financial Reporting, Chapter 7: Presentation, calls for updating the guidelines for presenting items in financial statements. The proposal explains how to display line items, totals, and subtotals in financial statements, and it addresses when some items should be grouped together if they share some characteristics. It also tries to clarify the relationship among assets, liabilities, and equity, and the effects of related changes on assets and liabilities on comprehensive income and cash flows.

Comments are due by November 9.

If finalized, the presentation chapter will become part of the FASB’s Concepts Statements and used by the board in developing the requirements for future accounting standards.

“The Conceptual Framework is the foundation for resolving accounting and reporting questions,” FASB Chairman Russell Golden said in a statement. “These proposals are intended to provide direction, structure, and a basis for consistent board conclusions when making standard-setting decisions related to presentation.”

Presentation and measurement issues are currently addressed in CON No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, which was published in 1984 and has scant information on both topics. It does not address the line in which individual recognized items should be included, and it is silent on how line items should be ordered or grouped.

Decisions about presentation — how information is displayed in financial statements — are important for accounting standard-setters because investors, analysts, donors, and other readers of financial statements want information conveyed as clearly as possible.

The FASB also wants to be seen as making consistent decisions about presentation. Critics, including FASB members themselves, often say the accounting board makes standard-setting decisions on a case-by-case basis. The inconsistency sometimes leads to contradictory requirements for similar transactions they were developed through separate standards projects.

Critics, including FASB members themselves, often say the accounting board makes standard-setting decisions on a case-by-case basis. The inconsistency sometimes produces standards that are developed with questionable logic, and it sometimes leads to contradictory requirements for similar transactions that differ largely because they were arrived at through separate standards projects.

The FASB issued its first Concepts Statement in 1978, five years after it was founded, and six more by 2000. But the overall Conceptual Framework is considered incomplete.

In 2004, the FASB partnered with the IASB to update and converge their respective frameworks. In 2010, the boards set aside the joint project to deal with more pressing post-financial crisis accounting projects.

The IASB revived its Conceptual Framework effort in 2012, independent of the FASB. The international board in May 2015 released Exposure Draft (ED) No. 2015-3, Conceptual Framework for Financial Reporting, attempting to refine the definitions of what the international board calls the “building blocks” of financial statements: assets, liabilities, equity, income, and expenses. The IASB wants to finalize its framework this year.

The FASB revived its project in January 2014 with a somewhat narrower goal than the IASB’s, and the U.S. accounting board is focusing on presentation and measurement issues for now.

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