The FASB on November 1, 2021, proposed modifications to interim disclosure rules aimed at helping companies to provide more meaningful information about their operations in quarterly note disclosures.
The proposal would help companies that produce overly excessive disclosures to provide investors with more useful, tailored information, accountants have said.
Companies would continue to focus on disclosing the transaction or event that has a material effect on the business, according to the proposal.
Updates resulting from a significant event would need to be disclosed in the notes and aligned with what would be provided under the annual disclosure requirements. That would make updated interim information parallel with how annual information has been conveyed to enable investors to clearly identify the new information.
The proposal would specifically amend Topic 270, Interim Reporting, to introduce a principle based on changes to Regulation S-X, Rule 10-01, Interim Financial Statements. That principle requires 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.
Companies are not expected to incur significant costs because of the proposed revisions, but public companies “could incur incremental costs when using discretion to determine what disclosures to provide on an interim basis in accordance with the new principle being proposed,” a text of the “Basis for Conclusions” section of the proposal states.
Practice is not expected to change, however, because the language is in large part based on language that was originally part of SEC Regulation S-X, Rule 10-01. In addition, although few private companies likely prepare interim financial statements and notes in accordance with GAAP, those that do “are likely leveraging SEC requirements for interim reporting and, therefore, as for publicly traded companies, the language changes are not expected to change practice,” the Basis text states.
The amendments would allow interim disclosures to take one of the following three forms: full statements and disclosure notes as previous annual statements; full statements as previous annual statements with limited disclosure notes subject to Topic 270; and condensed statements with limited notes subject to Topic 270.
If finalized, the changes would be applied prospectively, the proposal says.
Companies have until January 31, 2022, to submit comments to the changes, issued as Proposed Accounting Standards Update (ASU) No. 2021-001, Interim Reporting (Topic 270) Disclosure Framework—Changes to Interim Disclosure Requirements.
The proposal is part of the board’s ongoing effort to improve note disclosures and stems from its disclosure framework project which aims to improve the effectiveness of disclosures in notes to financial statements.
In August 2018, the board issued FASB Concepts Statement (CON) No. 8, Conceptual Framework for Financial Reporting—Chapter 8, Notes to Financial Statements, which identifies a broad range of possible information for the Board to consider when deciding on the disclosure requirements for a particular topic.
The proposal is the result of the board’s consideration of the concepts in Chapter 8 as they relate to interim disclosures.
This article originally appeared in the November 2, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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