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Final Changes to Materiality Guidance Slated for 2017 Release

The FASB does not plan to finalize the proposed changes for the guidance on materiality in financial statements until it can take a more comprehensive look at the overall disclosure framework project. In 2015, the accounting board released two proposals clarifying how public companies should determine the information that must be disclosed to investors in the footnotes of financial statements under U.S. GAAP. The proposed changes have proved controversial for some investors, who fear management will be given leeway to omit important information.

The FASB does not plan to finalize its materiality proposals until it can take a more comprehensive look at the overall disclosure framework project, according to Chair Russell Golden.

Golden, speaking before the May 18, 2016, quarterly meeting of the accounting board’s parent organization, the Financial Accounting Foundation, in Washington, made the remarks in response to a question about a recent New York Times op-ed, which suggested final changes could come “any day now.”

In September 2015, the FASB issued two proposals clarifying how public companies should determine the information that must be disclosed to investors in the footnotes of financial statements under U.S. GAAP. The proposed changes have rankled some investors, who fear management will be given leeway to omit important information.

Proposed Amendments to Statement of Financial Accounting Concepts (CON) No. 2015-300, Conceptual Framework for Financial Reporting Chapter 3: Qualitative Characteristics of Useful Financial Information, and Proposed Accounting Standards Update (ASU) No. 2015-310, Notes to Financial Statements (Topic 235): Assessing Whether Disclosures Are Material, describe materiality as a “legal concept” that can be changed through legislative, executive, or judicial action.

The proposals are part of a broader FASB project to streamline the disclosure requirements in U.S. GAAP. The accounting board plans to hold a roundtable discussion later this year to gather more views about its plans before finalizing the materiality proposals.

“The disclosure framework project is a multiple-phase project, and materiality is just one component,” Golden said. “The board has communicated publicly that it is not our intention to make any final changes until we can talk about this project holistically.” The FASB is planning a roundtable discussion later in the year to discuss the project.

By the end of 2016, he said the board plans to have exposed all phases of its disclosure framework project, and will have a plan in place “as to how we will complete this in 2017.”

With its materiality proposals, “what the board was attempting to do was align the conceptual framework to that of the auditing standard as well as securities law,” said Golden.

An April 26 New York Times op-ed, entitled “The Quiet War on Corporate Accountability,” suggested the changes could be imminent, and called on the FASB to “abandon its efforts to undermine disclosure rules.” The op-ed was coauthored by Harvard Business School professor Karthik Ramanna and Allen Dreschel, an attorney with the nonprofit advocacy group Better Markets.

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